MINNEAPOLIS & ST. LOUIS R. CO. v. U.S.
Legal provision: Interstate Commerce, as amended
Argument of Max Swiren
Chief Justice Earl Warren: Number 12, Minneapolis & the St. Louis Railway Co., Appellant versus United States of America.
Number 27 South Dakota et al versus United States et al and Number 28, Minnesota et al versus United States.
Mr. Swiren you may proceed.
Mr. Max Swiren: Mr. Chief Justice and Your Honors.
This proceeding concerns two competing applications for authority from the Interstate Commerce Commission to acquire the capital stock of a small bridge carrier known as the Toledo, Peoria & Western Railroad.
I brought this large reproduction of one of the two maps appended to our brief in order that we might proceed more expeditiously in painting the picture of the relationships and the basic problem here involved.
The carrier that is the subject matter of the concern crosses the (Inaudible) of the State of Illinois and it is here in green beginning at the Indiana state line passing through Peoria and then on to Lomax and Keokuk on the Iowa side.
It is 240 miles long --
Justice Charles E. Whittaker: On Iowa side.
Mr. Max Swiren: On the Iowa side, yes sir.
It's 240 miles long and draws its strategy from the fact that it bridges the transcontinental carriers of the east and the transcontinental carriers of the west through the Peoria gateway, and that brings us to the problem of what we mean by a gateway.
The largest terminal for railroad interchange is in Chicago with 31 road haul carriers and a large number of switching lines serving this tremendous industrial complex.
The next largest east-west gateway is at St. Louis.
At both points there is a break in the divisions of rates between carriers.
Justice John M. Harlan: May I ask you a question?
Mr. Max Swiren: Certainly Mr. Justice Harlan.
Justice John M. Harlan: I wanted to ask you (Inaudible)
Mr. Max Swiren: That's terminal line in -- in the Peoria District in the switching district.
Justice John M. Harlan: Is that (Inaudible)
Mr. Max Swiren: No sir it is not.
No, there are two switching lines in Peoria.
One is the P&PU and the other is the Peoria Eastern.
The -- the advantage of course of Peoria is that it by-passes the congestion and delay of the very busy terminals in Chicago and St. Louis, but it also has the disadvantage to many carriers of shortening their haul and therefore their divisions.
There is a fourth gateway that needs to be considered here, which is the Decatur in combination with the Hannibal Bridge over the Mississippi.
That combination is used exclusively as shown by this dotted line by the Wabash, a wholly-owned subsidiary 99%-owned subsidiary of the Pennsylvania Railway.
Of the two applications of -- were pending before the Commission are one by the small carrier that I represent, the Minneapolis and St. Louis Railway --
Justice William J. Brennan: That never has been an issue, has it?
Mr. Max Swiren: No sir it is not.
It is an independent railway.
It has a $20 million dollar capital and revenues at $20,500,000, a plant with the book value of about $72 million and just to get the orientation it compares with the two competing lines in this fashion.
It has 1400 miles of rail, but lacks density.
For example its density is one million revenue ton miles per mile of rail compared to the national average of almost two and a half million --
Justice William J. Brennan: Is it larger than Agrarian Road?
Mr. Max Swiren: It's larger in Agrarian Road, yes sir and the third of it is bridge traffic which does not originate or terminate on its line.
It's dependent upon connections with other lines and dependent exclusively if I may say upon the Peoria gateway.
It's the only carrier concerned in this proceeding outside of Western, the subject matter of the controversy, which is confined exclusively to the Peoria gateway and that is one of the key aspects of this matter that unfortunately the Commission did not take into account.
The -- the two applications made by the Minneapolis and St. Louis Railway which operates its mainline from Minneapolis while it moves of course down to Peoria.
It has branch lines as the Court will see to a person, your various agriculture areas of Minnesota and Iowa and then extends further out not shown on this map into North -- South Dakota.
Justice Felix Frankfurter: It's the only (Inaudible)
Mr. Max Swiren: I beg your pardon?
Justice Felix Frankfurter: As the north (Inaudible) I'll call this north where I'm going.
Mr. Max Swiren: Our -- our lines goes all the way to Peoria.
Justice Felix Frankfurter: And stops there?
Mr. Max Swiren: It stops there, yes sir.
Justice Felix Frankfurter: There's some more green I see up there.
Mr. Max Swiren: That's part of the -- of the Western.
The Western starts at Effner, and the Indiana-Illinois state line runs across the State --
Justice Felix Frankfurter: Into our --
Mr. Max Swiren: -- to Lomax which is just short of the Mississippi and then down into Keokuk across the Mississippi and Iowa.
As I say there are two applicants.
One is the Minneapolis and St. Louis and I may say that in order to get a proper view of the scope of the other two applicants a reference ought to be had to the first map attached to our brief.
It shows the broad expanse of the two giant carriers whom we oppose in this proceeding.
On the one hand, there is the Pennsylvania Railroad which is far and away the most powerful and largest carrier in the United States in all terms except number of miles of track.
It has 10,000 miles of track.
It has a billion dollars a year in freight revenues.
It has the most concentrated industrial origination territory that the country has.
It has the plant facility that totals a $1,800,000,000.
It has density a 175% of the average I think it runs 4,240,000 revenue ton miles per a mile of track.
In addition to that it has a great many subsidiaries, the most important of which for this purpose is the Wabash which is itself is five times the size of Minneapolis and the Wabash is a very important, a very potent, a very effective competitor of the Western as the Court will see.
It serves the same purpose of joining the east and the west.
The Pennsylvania competes with the Western by concentrating on two gateways.
Its first solicitation is for the St. Louis gateway.
The second solicitation and next longest call is for Chicago.
It has never solicited for the Peoria gateway.
Let me say that again because I want to make this perfectly clear.
Neither the Pennsylvania nor the Santa Fe which now seek to acquire this Western property has ever solicited traffic for this gateway.
They not only prefer but they concentrate on their own longer haul gateways which are St. Louis and Chicago in the case of Pennsylvania and Chicago and the late case of Santa Fe.
Now this map does not show of course the full scope of the Santa Fe which appears on this small map.
It covers 12 States.
It's the third largest railroad in -- in volume in the United States.
It's -- it's got a plant of $1,600,000,000, $600,000,000 of revenues a year.
It taps the two fastest flowing areas of the United States, the southwest and the California area and it too has tremendous manufacturing originations.
64% of its volume comes from manufacturers originating on its own line and that's -- that's the profitable and the -- the very strong potent weapon for dealing with other railroads because the originating carrier has a great deal of influence on the routing of traffic.
He is the originating carrier deals with the customer, provides the service, provides the cars, provides the wealth of information, in -- in short does the day-to-day servicing and is so -- and as a result its very close to the originating shipper.
Chief Justice Earl Warren: Did you file a question to Senate to the traffic in Western to the eastern district by Pennsylvania's and the Santa Fe item?
Mr. Max Swiren: Without -- without meaning to avoid the question let me say that I think the word contributed is unfortunate --
Chief Justice Earl Warren: Well --
Mr. Max Swiren: - because that's what --
Chief Justice Earl Warren: Use that work you wish.
Mr. Max Swiren: -- but -- but the connection -- the connection supplies the about 64 % of the traffic that Western gets.
That is the connection over here in the east with Pennsylvania and on the west with Santa Fe.
And those connections I should say came about -- and that traffic came about through the genius of a man now dead, George McNear and perhaps this would be a good spot Mr. Chief Justice to indicate how all these came about.
For 33 years, the Pennsylvania Railroad and the Burlington which is another huge western carrier, owned the western property jointly, each owned 50%.
And the interest of those two carriers in the longer haul competing gateways was such that this gateway dried up and Western went into receivership where it languished for 10 years.
And then it was bought as two strips of west if you please by this man McNear who advised the Commission of the time he made the application to acquire the property that this railroad could never prosper as long as it was -- was in the control of the carriers with whom it had to compete and that was the situation with the Pennsylvania and the Burlington and he demonstrated that very graphically.
He bought the property in 1927.
In less than two years, the car loadings went from 38,000 to 68,000 and I might say while the Commission says that there is time at least a time relation between the connection at Lomax with the Santa Fe, and the successive Western, it does not appear in the figures or in the facts, there may be a time connection but no factual connection.
Of that 68,000 cars, less than 6000 cars came at that connection and at the same time some Burlington traffic was lost because when that connection was made, the Burlington connection at this point was broken leaving only two other connections with Burlington.
So the 6000 figure is not a net figure and even that is very small in relation to the total picture.
The undisputed fact is and the Commission found that the Pennsylvania and the Santa Fe have offered passive resistance and that's an interesting term because we -- we've come to the language problem in that connection presently.
I was interested in hearing the opinions of the Court this morning with respect to differences in the use of language that we -- we find that at least two of the railroads in this case had special language of their own and one of the aspects of that special language is this passive resistance.
It didn't counter-solicit as they said but they tried to get the business themselves through the St. Louis gateway first for Pennsylvania, Chicago gateway second and through the Chicago gateway for the Santa Fe.
Justice Felix Frankfurter: Do I understand to say to see if I apprehend what you've said that while this road was in the ownership of the Pennsylvania and Burlington, for practical purpose is that the business on the road was dried up until your Mr. McNear acquired it.
It went into bankruptcy and it was sold to him or -- or the reorganization turned to him with the permission of the ICC and thereafter began to build up businesses.
Mr. Max Swiren: That is correct sir.
And since his death, in 1948 the present president, Mr. Cozard has continued the policy of independent solicitation and the property has continued to grow.
Justice Charles E. Whittaker: Is that what you listed here?
Mr. Max Swiren: I beg your pardon sir?
Justice Charles E. Whittaker: Is that what you've listed including the two plans?
Mr. Max Swiren: No, sir.
Under the approved plan, the -- the Santa Fe and the -- the Pennsylvania had promised to continue the present management and have promised and the Commission took them at their promise, that they would place the connections of Western on parity with Chicago.
And as we demonstrate in our brief, and we shall show presently, with the Court's permission those promises are contradicted by the president of the Pennsylvania and by the president of Western who was called as the last rebuttal witness for our side that they were Pennsylvania.
Justice Felix Frankfurter: You'll fill the gap a little later by telling us how the present situation arose, namely, how the present plan of re-acquisition certainly by the Pennsylvania and the new center that they came about.
Mr. Max Swiren: That's exactly what I'd like to do now Mr. Justice Frankfurter.
In for about eight or ten years there had been a great deal of talk about combining the Minneapolis with Western as a natural merger that the president of the -- of the -- of this -- of the Pennsylvania had been urging it for years.
He said, “This is a natural.”
That is the light word he used.
The president of Western had been endorsing it for years and I might say that those endorsements continued up until the moment of this litigation where they became partisans, they changed their views understandably.
It had always been regarded as desirable to combine these two small carriers each of whom was interested solely in the promotion of the Peoria gateway and had no competing interest.
Justice Charles E. Whittaker: Always desirable, desirable by whom?
Mr. Max Swiren: It was thought desirable by men such as the president of the Pennsylvania who was well informed and the largest - represented the largest connection, the president of the Western.
Justice Felix Frankfurter: But Mr. McNear, was he concerned with -- did he have the desire to merge with somebody else?
Mr. Max Swiren: That's a difficult thing to join.
There were two strong personalities, Mr. McNear and Mr. Sprague, who was then the president of Minneapolis and the record shows that Mr. Symes, the president of the Santa Fe had great difficulty getting them even to speak to each other.
And this -- that it was the clash of each personality that apparently had made impossible to effect the merger at that time.
And in 1954, new management came into -- to the Minneapolis and that was the beginning of a present chapter.
The new management immediately began seeking to acquire the Western.
I may say that my brother on the Government side didn't read the record very carefully when he said that the trustees of this -- of the McNear estate wanted to sell the property, Pennsylvania and Santa Fe came in to buy it and so did Minneapolis.
The -- the picture was this.
Minneapolis went to the trustees month after month after month all through the Spring and Summer and Fall to try to persuade the trustees of the McNear estate who controlled 72% of the Western stock to sell and made offers.
And they got no place, until finally, in March, the trustee said, “We'll now consider this matter and we will come back to you in 40 days.”
In the meantime, other events had occurred.
In the first place it became known that the -- that interest (Inaudible) to Minneapolis, had acquired a large position in voting trust certificates of Monon Railroad.
The Monon Railroad is this brown line property that -- that runs down from Louisville to Chicago and that it also has a line that goes through to Michigan City.
There has for years been talk of a possibility of joining the three properties, the Minneapolis and St. Louis, the Western and the Monon which with a bridging of a gap of 27 miles would form an outer -- outer belt line by-pass at Chicago.
Justice Potter Stewart: Could you trace that outer, outer belt line?
Mr. Max Swiren: Yes.
It -- it comes from the Minneapolis to Peoria to Western and then there's this gap that would have to be bridged with 27 miles and then the Monon that comes up here and connects with all of the eastern carriers and also carriers that come down from Michigan.
And that would make it possible then to move a train on an affiliated line, went around Chicago without any switching or any delays or any duplication of service.
And when Mr. Symes, the president of the Pennsylvania heard that he said, “When I heard this grandiose plans, I decided to put an end to this nonsense” and those are his words, “and I'm going to get permanent protection for the Pennsylvania Railroad.”
And with that sense of public interest, Your Honors, he proceeded to -- to buy the property and the way it was bought was this.
Justice Felix Frankfurter: Had the Western been making money?
Mr. Max Swiren: Western has been making money Your Honor, making money now as making money then.
Justice Felix Frankfurter: At the time -- at the time that which you speak.
Mr. Max Swiren: At the time at which we speak the Western was making varying amounts running from $650,000 to $850,000 a year net.
It's a fine property today, in excellent financial condition, operated well and functioning well.
The purchase arrangements that came about were these - Wilmington Trust Company was the corporate trustee and there was an individual trustee for the McNear estate.
The corporate trustee shared in common with -- Pennsylvania and one of its subsidiaries, one director and shared in common with three other subsidiaries, other subsidiaries of Pennsylvania, three directors.
At that interlocking directory served Pennsylvania well because it yielded preference in the negotiations.
I should like to make it clear Your Honors that I'm not complaining about a failure to live up to the highest ethical standards required of fiduciary.
Justice Felix Frankfurter: It's interlocking had -- they have the approval of the ICC, does it not?
Mr. Max Swiren: Sir, it's -- it's even more than that under the -- under Section 10 of the Clayton act, no carrier may have any dealings in securities with another corporation with which it shares a director, if the amount is more than $50,000 in any year except by competitive bidding under rules prescribed by the ICC.
That was not done in this case and as we shall see presently the Commission simply found that the Act did not apply because not the first contract but the second purchase contract was nominally in the name of Santa Fe alone and that brings to the negotiations at their next step.
Just about the time of the 30-day period for the trustees to come back and -- and tell the Minneapolis whether they would deal or not, and at what level, without words to the Minneapolis the trustees entered into a commitment by two letter agreements to sell 26% of Western to Pennsylvania and 26% of Western to Santa Fe at a $100 a share.
Immediately Minneapolis heard about it, its chairman communicated with corporate trustee and said, “We told you that we'd pay a fine price for this property.
We're prepared to pay more than what you sold it for.
We'll pay 5% more.
We don't know what the price is but we know it's worth more to us than it is to Pennsylvania and Santa Fe and the trustee said, “We're sorry it isn't even worth your corporate to come down and to talk us about it.
The individual trustee then intervened and said he hadn't been consulted whereupon the Minneapolis sent an offer to pay a $133 a share as against the $100 that's been paid and kept that offer open for a week and at the request of the individual trustee who said, “You need not worry, we'll not let you down.
You've made the market for us.
They extended it for two weeks more and on the very last day, while counsel for the individual trustee was drafting an acceptance, they called Pennsylvania and Santa Fe.
Pennsylvania said, “We have a contract.”
Alright the 15th contract is good, we don't care anything about that repudiation we're going to stand on it.
Santa Fe then signed up to buy a 100% of the stock owned by the estate and expressed its willingness to buy the stock owned by minority shareholders, something Minneapolis had always been prepared to do and had announced to the individual holders.
Justice Felix Frankfurter: I've lost you Mr. Swiren.
The Santa Fe was prepared that – they would buy buy it 100%?
Mr. Max Swiren: Yes sir.
Justice Felix Frankfurter: But having -- having the Pennsylvania you've just told us that we -- we've got a prior commitment of the --
Mr. Max Swiren: For 26%.
Justice Felix Frankfurter: Yes.
Mr. Max Swiren: That's right sir.
So that so far as the --
Justice Felix Frankfurter: -- those two got in this problem, didn't.
Mr. Max Swiren: Well, that squabble was soon settled.
The -- they were all partners and they remained partners and they still are partners.
And a month after that transaction, Santa Fe entered into a contract to sell Pennsylvania half of the stock reserving to Pennsylvania the rights under its contract which it is now seeking to enforce in -- in the court of equity in Delaware against the Wilmington Trust Company.
That litigation is going on, so that that has then brought to the Commission a joint application by Pennsylvania and Santa Fe to acquire the stock of Western.
At the same -- and that price was just slightly more than the offer that had been made by Minneapolis and the individual trustee's assurance that he'd come back to us --
Justice Felix Frankfurter: I thought that it was $100?
Mr. Max Swiren: It was originally a $100 --
Justice Felix Frankfurter: And they raised it up.
Mr. Max Swiren: They raised it to a $135 when ours was a $133 some odd cents and they -- they ignored the suggestion of -- of Minneapolis that we would be prepared to enter into competitive bidding either privately or publicly for the property because we were certain that under our program which involved economies and efficiency of operation, the earnings would be considerably higher about twice as high and therefore we could afford to pay a higher price.
The surer way to take up situation permit it as to make that proposal and everybody knew what that situation was.
But the Wilmington Trust Company, they put the sale and the application then came before the Commission and so we have two applications before the Commission if I may outline them briefly and what they contemplate, and then I'd like to state if I may even issues of law that seem to me present in this case.
The two applications are these.
Minneapolis proposed first of all that it would integrate its operations with Western being concerned only with the Peoria gateway having no competing or conflicting interest, the integration is possible so that instead of switching cars here at Peoria, that needed to go to Effner or anywhere along this line that same train would come right along instead of yarding it in two different yards and switching it four times (Inaudible) would go right through.
There would be integrated service, duplicate yard facilities, shop facilities, traffic facilities of counting would all be eliminated.
Justice Felix Frankfurter: Tell me, wasn't the Western know that connection for the Eastern traffic?
Mr. Max Swiren: Yes.
Western is one of our connections although we also have connections at Peoria that are just as large with the Nickel Plate and with other roads and those connections would continue.
And as a matter of fact the same -- this another aspect of the integration would be that with respect to eight different railroads we would be enable to have direct connections instead of switching through another carrier that involved (Voice Overlap) --
Justice Hugo L. Black: Tariffs and all that.
Mr. Max Swiren: I beg your pardon.
Justice Hugo L. Black: Joint tariffs and all that.
Mr. Max Swiren: Oh yes and what that means is a saving of time and of -- and of money and we also proposed new service rights which Western with its relatively small traffic could not justify but which we felt we could justify with the addition of our traffic.
For example, we proposed a connection here at Watsinka with Chicago and Eastern Illinois which would open the way to the south and the southeast.
We proposed is of connections with the Illinois Central and the Gulf of Mobile on their branch lines to open up connections on their main lines so we could stay from 24 to 48 hours on a shipment and that would make us competitive we thought with the traffic moving to the south and southeast and in some respects to southwest.
So our program contemplated first of all new economies and efficiencies and we estimated by a detailed program submitted to the Commission that a $1,770,000 would be saved by eliminating the duplicate facilities and just to give the Court some idea the magnitude of that in relation to properties as a whole the total expense on the Western is about four million six or seven.
Secondly we proposed the accelerated and the added service and the new service routes.
Third we proposed to unify our solicitation.
Western has offices in 19 cities off the line.
We have offices in enough more to make it 35 as a total.
So that instead of soliciting in 19 cities for the -- for the Western property we would be soliciting for both properties in 35 cities and we expected to intensify the promotion that way particularly since there was no conflict in this promotion.
There had been some talk I might say the possibility that if Minneapolis ever acquired Western, it would abandon this west end.
That goes to us in our briefly clearly and specifically before the Commission and the Commission found that there is no intention to abandon that property the fact of the matter is that it's density is much, much greater than many branches of the Minneapolis and it's much more profitable than many branches, there'd be no purpose to that kind of abandonment.
Justice Charles E. Whittaker: (Inaudible)
Mr. Max Swiren: Yes sir.
So that is not in the case.
The Commission found and the whole of the testimony shows that our studies demonstrated the value of that line and that we have every desire and purpose to keep it and promote it.
On the -- on the other hand the Minneapolis – Pennsylvania-Santa Fe proposed no change in operation.
They promised that they'd keep the same local management that it would continue to operate and that posed a very serious series of problems to the Commission.
No -- no improvement for service, no economies, no change, but here was my acquisition that was being proposed by the two most powerful competitors that Western had.
Here was an acquisition proposed by the Pennsylvania which had undertaken to acquire this property for the deliberate purpose of stifling competition with Western and Minneapolis.
And here was a history of Pennsylvania and another western carrier having only Western and driven it into the ground.
It's been a disaster.
Well Your Honors the Commission handled that situation in this fashion as to both the motive of Pennsylvania to stifle competition it disposed it but by going --
Justice Hugo L. Black: Before you -- before you tell us what the Commission did, would you be good enough to tell us the proceedings before the Commission?
Mr. Max Swiren: Yes.
Both of applicants filed applications to obtain authority to apply for the property.
In keeping with the rule that the Commission had established in a number of cases it considered the many Minneapolis' application notwithstanding that no contract had been signed because the circumstances were such that there was a reasonable possibility that if the acquisition could be made, they were -- the trustees were in the list of accepting.
Justice Hugo L. Black: Couldn't they come in as opponents of the --
Mr. Max Swiren: No sir they did not.
Justice Hugo L. Black: I said could they -- they not have?
Mr. Max Swiren: Yes sir.
They did not though.
Justice Hugo L. Black: They did not.
They came as applicants.
They came as applicants for the --
Mr. Max Swiren: No, they didn't appear at all.
Justice Hugo L. Black: The Western there --
Mr. Max Swiren: Western didn't appear at all.
Justice Felix Frankfurter: I don't understand.
Was this case before the Commission?
Mr. Max Swiren: The case was before the Commission on two applications.
A joint application by Pennsylvania-Santa Fe and an application by Minneapolis and St. Louis alone and those were consolidated for hearing.
And in the consolidated hearing, the trial examiner decided that the application of Pennsylvania and Santa Fe should be allowed and the application of Minneapolis and St. Louis should be disallowed.
That was affirmed by the fourth division of --
Justice Felix Frankfurter: I don't know what kind of hearing was that before the examiner, extended hearings?
Mr. Max Swiren: It was -- it was a full hearing of five or six days.
I -- I gather from the record I wasn't present.
Justice Felix Frankfurter: And then it went to --
Mr. Max Swiren: And then it went to the division of the -- the Interstate Commerce Commission which affirmed which changed the --
Justice Felix Frankfurter: Was the hearing before it or did they --
Mr. Max Swiren: Yes sir.
There was a hearing before it.
Justice Felix Frankfurter: Human test -- human testimony, human testimony?
Mr. Max Swiren: No sir, just oral argument and briefs.
It then went to the Commission on Exceptions to the report of the Fourth Division with the request for oral argument which the Commission denied.
So that the Commission as a whole never heard even the arguments in the case it had the record and I take it was raised before the Fourth Division.
And it was in that posture that the suit was brought by Minneapolis before the District Court in Minneapolis.
Justice Felix Frankfurter: What did the -- commission-- was the Commission unanimous?
Mr. Max Swiren: Yes sir.
The Commission was unanimous.
Justice Felix Frankfurter: Was the Fourth Division unanimous?
Mr. Max Swiren: Yes sir.
Justice Felix Frankfurter: Then the examiner, the Fourth Division and the Full Commission all decided against it?
Mr. Max Swiren: Yes sir.
And so did the three judges of the -- of the statutory courts in Minneapolis.
Justice Potter Stewart: Now somewhere along the line certain conditions were imposed.
Were that -- is that done by the --
Mr. Max Swiren: That was done by the -- that was done by the Commission.
Those conditions were proposed originally by the Burlington and were accepted by all of the parties.
So that the conditions which were but the existing facilities and routes for service connections should be preserved in all respects.
Those conditions were proposed by the Burlington on the first day of the hearing and all the parties agreed to them.
I might say that my friends in the Government talk about our rigid acceptance of the -- the conditions.
We accepted them as soon as they were tendered and then the Commission adopted them as they had been submitted.
Justice Potter Stewart: And as you accepted them, if -- if you were to be successful, you -- you agree to these conditions.
Mr. Max Swiren: Right sir.
We announced that we were prepared to accept those conditions and to abide by them, if our application was granted.
And these --
Justice Potter Stewart: And the conditions were recommended by the hearing examiner and --
Mr. Max Swiren: Oh yes and they were adopted by the --
Justice Potter Stewart: They were adopted by that way.
Mr. Max Swiren: Yes.
They are not uncommon.
They are -- conditions of rather general use and purpose and they're designed to keep available the existing routes and facilities and connections.
Justice Felix Frankfurter: Was there any labor problem in connection with --
Mr. Max Swiren: Yes sir there -- there was and if Your Honor wants to hear about it now, there's no reason why we shouldn't talk about it now.
Justice Felix Frankfurter: At least you -- you do very well as I may say in your own way.
Mr. Max Swiren: I prefer to -- to talk about it in the -- in the setting in which the Commission dealt with the subject.
Justice Felix Frankfurter: Would the laws be contradictory?
Mr. Max Swiren: There always are labor problem when you're trying to save a $1,770,000 a year.
The -- the Commission as I am saying had these three problems with the application of the Pennsylvania-Santa Fe before it got before it got to the question of a comparative hearing.
The first was the problem of its purpose in acquiring Western for the sole reason of stifling competition that it dealt with by ignoring it And so did the Government in its brief and so did the Pennsylvania-Santa Fe.
Everybody, the persons let to the subject with silence.
Justice John M. Harlan: (Inaudible)
Mr. Max Swiren: I say the subject that has been brushed with silence is the admitted purpose of the Santa Fe -- of the -- the Pennsylvania to acquire Western for the stifling of competition before closing the competition by Western --
Justice John M. Harlan: That's on the outer, outer belt.
Mr. Max Swiren: On the outer, outer belt.
Now there's no dispute about it.
It was admitted by the President of Santa Fe so that the evidence is here but the Commission simply ignored it.
Justice Potter Stewart: Let me ask you while we're on this -- this factual situation?
Are the -- are the gateways of Danville, Decatur Springfield along the Wabash which is a wholly owned subsidiary of the Pennsylvania, are they of any consequence?
Mr. Max Swiren: The -- the Decatur gateway is because as Your Honor would see that leads through the Wabash to the Hannibal bridge crossing the Mississippi and then on to Kansas City.
The other two are lesser in importance.
The Springfield gateway is -- is an important gateway but of lesser importance so far as the Wabash is concerned because it's opened to other routes.
For example we can reach the Springfield gateway through the Chicago and Illinois Midland and do have a service route which practically rules in the St. Louis from Minneapolis to Peoria and down to Springfield and then across on the (Inaudible) so that the Springfield service route is open pretty generally to most people in the Wabash position is no different from that of any other individual carrier, but in Decatur it has the dominant position because of the Hannibal Bridge controls.
Justice Potter Stewart: Does it avail transcontinental traffic across from the Wabash?
Mr. Max Swiren: Yes sir.
The testimony showed -- the testimony showed that the route of the Wabash to Kansas City had been improved and its time accelerated to a point where it drew traffic away from a combination of Western and Santa Fe.
So that they're active in competition and successfully in competition I may say.
Justice Potter Stewart: And the Wabash is wholly owned.
They're virtually wholly owned by Pennsylvania.
Mr. Max Swiren: Yes sir.
And I should also say that the Santa Fe shortly after the hearing opened up a new facility in Chicago which doubled its capacity and doubled the speed for handling cars and that has tremendous importance because in addition to getting the higher divisions for the longer haul, they now had the opportunity of moving a large volume of cars through on an incremental cost basis.
The cost of facilities there, the fixed charges are already there and the only cost is the service charge of moving the cars through this very efficient expedited automatic yard.
The -- I up in negotiations -- the -- the hearing stage.
The Commission then -- then had the second problem that it virtually ignored and that's the history.
At no time did the Commission say that the incentives which the Pennsylvania and Burlington had no longer obtained because there was some change in circumstance.
Of course there were great many years that have passed but that doesn't mean that the economic self-interest of people changes.
Human nature hasn't changed in the last 40 years so that railroads are not interested in their long hauls.
They've always been interested in their long hauls and higher divisions.
It's perfectly natural, perfectly human and universal in its -- in its application.
So the Commission ignored the fact that under this -- the ownership of Pennsylvania and a Western partner, this very property dried up.
And the incentive, which the investment in this property provided was not sufficient to overcome the advantages of the long haul and the greater divisions.
The third problem --
Justice Potter Stewart: Now at that time, there was no connection for that (Inaudible)
Mr. Max Swiren: That -- that is true.
That there was a connection and the connection went further which was discontinued at this point at the same time that the Lomax connection was made.
Justice Potter Stewart: It was a Texas or Burlington.
Mr. Max Swiren: It -- it was a connection that came up here to Burlington.
Justice Potter Stewart: And with the -- the Western.
Mr. Max Swiren: Yes, the -- the Western connected with the CB&Q here at Burlington and Iowa and that connection was broken according to the testimony of Mr. Gurley the President of Santa Fe at the time the Santa Fe connection was made.
Justice Potter Stewart: Now the Burlington's gateway at Chicago was the major gateway.
Mr. Max Swiren: Burlington and Chicago and also had them both, but its major gateway, I think, is Chicago just as the Santa Fe gateway of Chicago.
Now the third question that the Commission had in connection with this application apart from the comparative problem was the fact that these two lines were named the most powerful competitors of Western.
And they got around that by building structure on two pillars.
The first was that this was going to be an independent separate organization running Western.
It was not going to be responsive to the rule or self-interest or the economic well-being of the -- the masters.
That's a very slim reed on which to build any kind of structure let alone an important facility in transportation.
There's no showing at all of any case in which the Commission has found that this type of operation could function successfully in defiance of the self-interest of the owners.
Secondly and most important of all, the Pennsylvania-Santa Fe told the Commission, “We're going to put Lomax on a parity with Chicago and Effner on a parity with Chicago for solicitation purposes” and the Commission bought that.
Justice Felix Frankfurter: What does that mean, just trying to refer into concreteness?
Mr. Max Swiren: I -- I shall do that sir.
Mr. Gurley was asked what that meant he is the president of Santa Fe and his language was very explicit.
He said, “We'll tell the shipper that we would take the traffic either at Lomax or Chicago, without preference.”
Justice William J. Brennan: Without preference?
Mr. Max Swiren: Without preference.
Mr. Daffey the –
Justice William J. Brennan: (Inaudible)
Mr. Max Swiren: Without preference, they had no preferences as to whether they got it at Chicago or Lomax.
Justice Potter Stewart: What significance (Inaudible)
Mr. Max Swiren: Well that they were willing -- that they -- they were in their solicitation.
They were going to tell the shippers and I think the best thing I can do is to -- to read you what Mr. Daffey said and this appears at 483 of the record.
It is the purpose of Santa Fe to advise all of its solicitation forces that they will place Lomax on parity with Chicago in their solicitation efforts.
He then said, “We would not solicit Chicago preferentially over Lomax.
We won't solicit Lomax preferentially over Chicago.
Justice Felix Frankfurter: Well the shipper could make that choice.
Mr. Max Swiren: Yes the shipper could make it, of course.
But the --
Justice Felix Frankfurter: I mean the shipper could have made it before this --
Mr. Max Swiren: That's true.
Justice Felix Frankfurter: -- promise was made.
Mr. Max Swiren: But -- but the fact remains that the originating carrier has a powerful influence with the shipper and his advice and guidance carry straight weight, but the promise was made to the Commission that they would put these two points on a parity and Pennsylvania said the same thing.
They said, “We'll continue to seek our long haul to St. Louis but after when Chicago will be on parity.”
Two witnesses gave the light of that.
Justice Felix Frankfurter: How can you give a lie to other men something that could in the future?
Mr. Max Swiren: Well Mr. -- perhaps I can demonstrate it by what he said.
Justice Felix Frankfurter: You can say it with slim promise but --
Mr. Max Swiren: No, I think -- I think the evidence is it was never meant in the sense in which it appeared and in the sense in which it was bought by the Commission.
Justice William J. Brennan: (Inaudible)
Mr. Max Swiren: Well I had assumed that parity means equality.
That soliciting --
Justice William J. Brennan: How do you (Inaudible)
Mr. Max Swiren: No, in the effort -- in the effort to get the traffic.
They then said in solicitation.
Solicitation is the effort to get the --
Justice William J. Brennan: More than they have as many solicitors in Lomax as there has been?
Mr. Max Swiren: No, that the solicitors would -- would ask for the traffic either through Chicago or Lomax heretofore they'd always ask for only through Chicago that the Pennsylvania solicitors --
Justice Felix Frankfurter: Should we contend possession with here have to go to Lomax rather than --
Mr. Max Swiren: It would go equally --
Justice Felix Frankfurter: Equally well.
Mr. Max Swiren: Equally well under the solicitation.
Justice Felix Frankfurter: And you would let Chicago be desirable most extensively.
Mr. Max Swiren: They would not urge Chicago over Lomax and wouldn't urge Lomax over Chicago.
At -- at least that's what I would understand parity or solicitation to mean.
Now when we went through the record we found this situation.
Mr. Symes, the President of Pennsylvania said, “Well I don't think there's going to be the real change after this over.
If anybody asked me where to send the car, I'd say send it through St. Louis.
If I couldn't it to send it through St. Louis I'll tell them send it through Chicago.
And then if I couldn't get them to go through Chicago then I would let it go through Effner.”
So that the parity --
Justice Hugo L. Black: When did he say that?
Mr. Max Swiren: He said first St. Louis, second --
Justice Hugo L. Black: I mean I understand that but when did he say that?
Mr. Max Swiren: He said that on the witness stand.
Justice Hugo L. Black: Is that in the record?
Mr. Max Swiren: Yes sir.
Justice Hugo L. Black: Did he admit that?
Mr. Max Swiren: Yes sir, this -- well that's what he testified to.
It's cited in our brief.
Justice Felix Frankfurter: When did the first commitment made if they would be with them on a parity, who made that and when?
Mr. Max Swiren: Three men made that on the witness stand.
Justice Felix Frankfurter: And who were they?
Mr. Max Swiren: Mr. Gurley, the President of Santa Fe, Mr. Daffey the traffic vice president of Santa Fe, Mr. Coffey, the traffic vice president of Pennsylvania.
Now Mr. --
Justice Felix Frankfurter: I'm sure you can't charge officially against Mr. Symes, can you?
Mr. Max Swiren: Well, Mr. Symes first said what I quoted him in saying and later on he said, “Well they are all three about the same as far as I'm concerned.
I don't think they make much difference.”
Then the final witness really explained it because is turned out that we were talking that we were involved in a special problem of semantics because Mr. Coulter the president of Western was called as the final rebuttal witness for the successful applicants and he said, “Parity doesn't mean that they'll solicit at all.
They are never going to solicit upon the freight for Western.
Nobody that works for Pennsylvania or Santa Fe is going to try to get freight to go through the Peoria gateway.
What parity means is benevolence.”
Now we asked him what has been the attitude up to now that was -- that ultimately was described by the Commission as passive resistance.
He says benevolence and he said benevolence and parity are synonymous.
The Commission didn't pay any attention to that.
It made the finding which it took verbatim out of the briefs of Santa Fe, Pennsylvania and I'd like to read that finding on page 34 of the record.
They said if Santa Fe obtains a half interest in Western, it intends to place Lomax on parity which Chicago from a solicitation standpoint and as the other half-owner the Pennsylvania will recognize Effner as one of its principal interchanges along with Chicago and St. Louis.
Justice John M. Harlan: After they took it from the yard.
Mr. Max Swiren: Yes sir.
While Pennsylvania will continue to solicit its long haul to St. Louis, Effner and Chicago will be on parity.
Well the truth is that there isn't going to be any parity here at all.
I could have change a thing upon keep on building the same strong competitors they always were and it isn't going to change their method of solicitation.
Justice John M. Harlan: In my understanding on the (Inaudible)
Mr. Max Swiren: I -- I can well understand that sir.
The -- the condition that has been obtaining up to now as the Commission found has been described as passive resistance.
Mr. Daffey of the Santa Fe said, “That's a sort of friendly neutrality.
It's a benevolence.”
Then when Mr. Coulter got on the stand, he is the President of Western, he said, “Parity doesn't -- parity and solicitation doesn't mean solicitation at all.
They're not going to solicit for this gateway at all.
They're not going to object if a shipper wants to send it through the gateway,” of course they can't object.
They can't stop the shipper from naming any point he wants.
“It's a kind of benevolence”, he says and he was asked then, “Do you mean that parity and benevolence are synonymous” and he said, “Yes.”
Now that's the state of the semantic.
Justice John M. Harlan: Meaning without the (Inaudible)
Mr. Max Swiren: Yes sir.
I may say -- I may say that they're -- they're referred to very fully in our brief at -- What page is that?
Well I know that.
We're on our brief.
Mr. Coulter's testimony appears at 1600 and 1609 in the fourth volume and it might be worthwhile since it's very short for me just to read that testimony.
Justice William J. Brennan: (Inaudible)
Mr. Max Swiren: He favored the acquisition by Minneapolis and St. Louis until May 26, 1955, the date when the second contract was made to sell the property to Santa Fe and then Santa Fe to Pennsylvania.
Up until that point, he favored that Minneapolis acquisition.
After that he said, he favored the acquisition by the new proposed owners.
At 1600, he was asked whether under these conditions with the influence of the Pennsylvania add anything to the influence now being exerted by the PP&W in Santa Fe on a movement across the Peoria gateway.
He said, no.
Question - why not?
Because as I said before, this benevolent influence of the Pennsylvania was truly after a gateway which is present policy but they want their haul to Chicago or St. Louis which includes.
And then on 1609, he was asked, “In what way do you distinguish between parity and having the benevolent attitude toward the gateway?”
Answer - “In this way the railroad that has two gateways such as Effner and Chicago are not provoked if we get the haul through Effner.”
“That is benevolent attitude?”
Answer - “Benevolent.”
What is the difference if they are on a parity?
Answer - “That's it.”
Question - You think they are synonymous then?
Answer - “I think they are synonymous.”
And so if this testimony given by the witness for the successful applicant has any meaning at all, they simply perpetuated the hopes on the Commission.
There isn't any parity, there isn't any solicitation, we're going to have exactly the same thing that we had before active competition by Santa Fe, the Pennsylvania and the Wabash.
I -- I think in a great deal of time on the individual -- I may say that the subject is discussed in our principal brief on pages 40 to 42 in our reply brief pages 20 to 23 with the citations to the record on each of the witnesses.
There -- there are other aspects of the -- the comparative hearing that are significant unless the failure genuinely to make a comparison of the advantages and disadvantages of the two applications.
There was no effort to make a systematic evaluation weighing and balancing of the advantages.
Let me illustrate it.
In 13 different instances, the Commission found -- made no findings but said -- recited the position of Minneapolis.
Minneapolis insists, Minneapolis contends, Minneapolis states.
On economies they said Minneapolis claims economies of $1,770,000 and those were specified I may say job for job, facility for facility, yard for yard, office for office.
And it made no evaluation to that, but when it came to the Pennsylvania-Santa Fe application it said with representatives of Pennsylvania and Santa Fe on the Board, there ought to be able to find more economical ways of operating Western.
This indefinite they hoped was worthy of a finding but the $1,770,000 in savings each year was not dignified by any evaluation.
Nor did they make any evaluation as to the public service aspects of the improved service proposed.
The Commission found only one thing about that.
It said, “This new service would be extremely harmful to other carriers.”
And that's substantially a quote.
The only citation for that is the testimony of the president of the Wabash, a subsidiary of Pennsylvania, that a “large part” of 6500 cars a year could possibly be influenced away by Minneapolis if the connections at Forest are improved.
Now the connections that Western has -- has at Forest and they were talking about traffic that would move -- that now moves as he put it, along Wabash up to Albia and Des Moines.
The amount is -- is a pitifully small amount as you can see from the fact that the Wabash moves in at 20,000 cars a year.
And even then, the Wabash was not able to say how much of that large part would originate east of the point of cutoff at Des Moines here and how much west because the Western originations and destinations could not possibly be diverted.
So with that very vague and definite generality about a very tiny movement the Commission said the (Inaudible) program for improved service is extremely harmful.
When it turned to the other side of the coin, it knew how to -- to use a real yardstick.
It said that if the Pennsylvania-Santa Fe improved service, and as a result divert traffic, it will not jeopardize the ability of any other carrier to provide adequate transportation service.
That of course has some real relationship to the transportation -- national transportation policy.
I want to hurry along because my time is running out and talk about the labor situation that Mr. Justice Frankfurter referred to.
In an industry in which 50 cents out of every dollar goes to wages you can't have economies, you can't have elimination of duplication without affecting wages.
It's utterly impossible.
The Commission said the 256 positions would be eliminated.
That's quite true, but it didn't say was the stability of employment was derived not from the number of positions you have but from the efficiency and economy of the service.
That if a gateway dried up there wouldn't be jobs for the people that were there anyhow.
It didn't say that the -- Minneapolis showed that on the basis of its own experience with the average age of its executives below the officer level at 64, the natural attrition, would provide vacancies in the time necessary because the integration couldn't be carried out overnight to move these people into other positions and as a further precaution Minneapolis and St. Louis offered its application to adopt the Washington Job Agreement which provides security for employees for a five-year period and in fact permits employees with five years in service to get a year's pay -- a severance pay if they want to move another job.
That was not evaluated.
There was no determination whether there'd be 10 people or six people affected.
They talked only of the 256 positions which, of course, is an unrealistic appraisal of the problem of employment in and of itself.
I want to move on to point two if I may.
There's much more to be said about the lack of the findings, the absence of findings that we deal with in our brief, the failure to meet the obligation for a comparative hearing in the true sense because what they did was to say the ideal thing is to keep this property as it is.
Obviously that can't be done if you have integration.
Hence the Pennsylvania-Santa Fe plan was the only one to be taken.
There was no effort to add up the advantages, the disadvantages, the risks, the jeopardies and the public interest.
The second point we make is that the entire transaction of Pennsylvania-Santa Fe is rooted in illegality because the purchase, the dealings in securities between Pennsylvania and Santa Fe are illegal under Section 10 of the Clayton Act.
Now the Commission disposed off that in one way that District Court suggested some others.
And I think all of them were interesting but none of them very helpful.
The Commission thought that because the second contract was signed by the Santa Fe, it was not a transaction between Pennsylvania and Wilmington Trust.
I would think that having the partner sign does not immunize the transaction but more than that, the dealings had already taken place.
One contract had already been signed.
Those were the foundations for this transaction so that the dealings and contract in violation of the statute had already occurred.
The Court thought that possibly the fact that Pennsylvania Company put up the money and bought the 50% interest and was not itself a carrier although wholly owned subsidiary of Pennsylvania might immunize the transaction, but to answer that we need only look at the application.
It's an application by Santa Fe and Pennsylvania Railroad to acquire control of Western through the purchase of 50% by Santa Fe and 50% by the Pennsylvania Company.
So they met the reality of the situation which the Court was unwilling to do.
And because the Commission didn't see this as a Section 10 problem, they had no desire or need to inquire as to whether immunizing the transaction was in the public interest.
Now it's true that under 5 (11) transactions or acts necessary to carry out a Commission order are relieved from the restraints of antitrust laws.
That presents two problems here.
One is can they give condemnation under that statute to an act that is already illegal, not something done to carry out the Commission's order which is what the statute contemplates, nothing -- not something in future, something that has already occurred.
And secondly if it is within the scope of the Commission's power is it not incumbent upon the Commission to set out precisely the reason, the public interest consideration that warrants overriding the policy of Section 10 of the Clayton Act.
We come finally to the question which is of general and far reaching importance and that is the extent to which the Commission is called upon in administering the Interstate Commerce Act to accommodate the objectives of that Act with the objectives of the national antitrust policies.
Let me say that that was clarified.
The issue was clarified for us by the Government's brief.
For the first time, the Commission now explains what is added to this.
The Government's brief says that the national transportation laws were adopted in replacement or to use their language in lieu of the antitrust laws.
We do not read the McLean case either in its prevailing opinion or in its minority opinion to say any such thing.
We assume that the Court said what it meant when it said that the two policies should be accommodated to the extent that they can be.
And of course in accommodating the statutes the economic motivations, the purposes, the alternative possibilities that the second application presents must be taken into account.
Secondly the McLean case says as we see it that the transportation goals maybe permitted to override antitrust violations if positive gains are -- are achieved in transportation and if competition remains sufficient.
And that's the standard I may say that the Commission itself adopted just last year in the (Inaudible) case where they said that they have the right to overrule the antitrust limitations if affirmative transportation gains are affected and if it's necessary to achieve those gains and they take such form as economies, improvement in service and new efficiency and provided further that adequate competition remains.
If that standard will apply here, this order could not stand.
And I may say that basic to the Commission's error in this respect is the fact that it -- it played around with diversions of traffic.
It was concerned about whether one carrier or another would lose a few hundred or few thousand cars of traffic.
If never faced up to the full sweep of the antitrust problem, to the mechanism that was being set up here that would, if Sante Fe and Pennsylvania already pre-eminent in the Chicago and the St. Louis and the Decatur gateways, virtual domination of the Peoria gateway.
It never faced up to the fact that we were dealing with gateway competition on a large national transcontinental scale.
And in that respect it failed to meet its obligations in determining public interest.
The public interest could not possibly be assessed without taking into account that major problem of gateway competition, the major power, the concentration that was being afforded to the two giants who had undertaken this venture for the deliberate purposes of -- of stifling competition.
I may say that while this was directly shown out of the minds of the people of Pennsylvania, the Santa Fe morality is not any better.
The president of Santa Fe testified that he preferred to control the Western, rather than have everyone saying they'll purchase and that's it.
Justice Felix Frankfurter: This argument of yours rests, does it not, Mr. Swiren on your rejection of the Commission's finding to the contrary and your rejection of the Commission's finding to the contrary that if there is no -- no basis, no allowable basis and evidence for their finding, isn't that right?
Mr. Max Swiren: In part that's correct.
We're saying, sir, that the Commission actually did not explore the -- the gateway competition and it was charged with the responsibility of doing it.
Justice Felix Frankfurter: And of their opinion but they don't refer to the problem?
Mr. Max Swiren: They -- they do not, they do have --
Justice Felix Frankfurter: How many terms --
Mr. Max Swiren: No, sir.
They -- they --
Justice Felix Frankfurter: How could that (Inaudible)
Mr. Max Swiren: Well sir I -- I would ask that question too about the whole comparative hearing.
How could they reject our application without making a finding as to our service, as to our economies, as to the strengthening of two small carriers, objectives that are spelled out in the national transportation policy.
Justice Felix Frankfurter: They have.
Mr. Max Swiren: But they did.
Justice Felix Frankfurter: They had as it were your customers before them didn't they?
And -- and they have the testimony of customers who are feeding railroads and make claims and express preferences.
Now is that relevant to the problem?
Mr. Max Swiren: Yes sir.
As to the customers, there was a campaign under which Santa Fe and Pennsylvania assembled shippers and invariably they testified that they came at the -- that has to the Santa Fe or Pennsylvania and supported them.
In practically no instance had they examined our application.
Those who had been familiar with the Minneapolis and St. Louis service said it was fine.
For instance one of the mine owners who appeared said he'd be delighted if he could get a car supply that his competitors got from the Minneapolis and St. Louis just short distance away.
This was by no means an informed opinion of people competent to appraise the situation and the Commission itself has said on a number of occasions that the appearance of shippers or the absence of them does not minimize the responsibility of the Commission itself to form an expertise judgment and that's something it did not do in this case.
Justice Felix Frankfurter: Were there any offers of testimonies on your behalf that the Commission refused to hear?
Mr. Max Swiren: No, sir.
There were not.
There were not.
I think the -- the facts are not really in controversy.
There are no basic factual problems with evidence on one side or evidence on the other.
We have situations in which the Commission has simply accepted promises in derogation of the economic self-interest, in derogation of the reality of the situation of a history of previous conduct and that kind of --
Justice Felix Frankfurter: As to which there was testimony?
Mr. Max Swiren: Yes sir.
Justice Felix Frankfurter: At issue.
Mr. Max Swiren: Yes, sir.
Justice Felix Frankfurter: There was a testimony and -- and the Commission Examiner and the Commission directed itself to those problems and they found against you using improperly against you, is that right?
Mr. Max Swiren: They found against us in some things and didn't make findings in others.
Justice Felix Frankfurter: Well, that's a different point that they actually failed to --
Mr. Max Swiren: They actually failed to comply with the Administrative Procedure Act.
Justice Felix Frankfurter: They're trying to find these.
Mr. Max Swiren: That's right sir.
They did not make findings as for example the economies a $1,700,000 of economies.
They didn't make findings as to the public interest and the improvements in transportation that we offered.
They've no -- no finding of any kind.
The closest thing it came to making a finding was the one I mentioned the -- that some carriers might be hurt.
And that of course is not the statutory test nor is it the test that they themselves applied.
They -- they used three different criteria I may say for diversions of traffic as we spell out in our brief, but they say just one word.
It seems to me that what happened here is that the Commission decided in advance that it was going to entrust the Western to its two largest competitors and it was going to ignore the purpose of those competitors in seeking to crush the natural expansion of a small carrier.
And it did it by failing to have comparative hearings, by ignoring the policy of Section 10 of the Clayton Act, by failing to accommodate the antitrust laws to the transportation policies or attempting in any way to give credence to the natural and -- and statutory sweep of antitrust prohibitions.
Justice Charles E. Whittaker: Mr. Swiren, I'll finally ask you on this.
Mr. Max Swiren: Yes sir.
Justice Charles E. Whittaker: (Inaudible)
Mr. Max Swiren: No, I didn't say that.
I said that they -- their connections, they are the largest connections but the solicitation for that business is by Western.
What Western does is it solicits business from the east that would move in over the Pennsylvania, over the New York Central, over to the Nickle Plate.
It solicits from the west business that will move in over to Santa Fe, the (Inaudible), the Burlington, the Rock Islands half a dozen other carriers.
Now it so happens that the largest volume of business that it gets from the east that gets through Pennsylvania at the Effner gateway.
That's a perfectly understandable circumstance because of the fact that Pennsylvania dominates the large industrial segment of the east.
Pennsylvania, however, solicits actively for first for St. Louis and then Chicago and its volume through Chicago is ten times its volume through Effner.
It's five times this volume through -- I should say -- its volume in St. Louis is five times its volume in Effner.
Similarly, Santa Fe solicits only for Chicago.
It does not solicit for Lomax and its volume through Chicago is 10 times its volume through the Peoria gateway.
The traffic that it gets through the Peoria gateway is solicited by Western or by Minneapolis, which alone depends on that gateway and which concentrates on its solicitation.
Justice Tom C. Clark: Your position is that there are lines now that cross and that you're objecting to the fact that they created third line on grounds that they will not protect the interest of the third line.
Mr. Max Swiren: We think that they will not protect it and we -- we think that our self interest is in promoting it and building that gateway and it's for that reason I may say that the States of Minnesota and South Dakota had joined in supporting our application because of the importance of that gateway to them and their knowledge that our self-interest is in promoting Western, in building it up.
We have no other interest than to maximize its use whereas the Pennsylvania-Santa Fe are interested in promoting the use of St. Louis and Chicago which yield more dollars.
Justice Felix Frankfurter: Your -- your position is more con -- a little more concrete than that.
You say that by virtue of the overriding interest that the Santa Fe and the Pennsylvania have outside of this new acquisition is necessarily will have to supporting them the interest of the new acquisition to their major interest outside of them.
Mr. Max Swiren: That's couched as -- as if they did came out of our brief only in better in language.
Justice Felix Frankfurter: I had the benefit of not reading your brief then.
Mr. Max Swiren: Thank you sir.
Chief Justice Earl Warren: Mr. Soderberg.
Argument of Harold J. Soderberg
Mr. Harold J. Soderberg: Mr. Chief Justice and Honorable Members of this Court.
The State of Minnesota took a separate appeal as did the State of South Dakota.
I will attempt to cover in whatever time I have left.
The position of those two States, the Attorney General of South Dakota, Mr. Parnell Donohue is here today and he joins with me in the presentation that I have so far as the State of South Dakota is concerned.
There is, of course, a dual system of regulation Federal and State, both of which have certain areas of responsibility and certain areas of authority.
Generally speaking, they're both to promote the public interest and as I understand the public interest in the matter of railroads, it is to -- there to provide an adequate system of transportation.
Now, South Dakota and Minnesota in the discharge of their duties to represent this particular public interest wish to emphasize two basic concerns to the Court, namely, the preservation and development of the M&STL and the preservation and development of the Peoria gateway.
Now as to the M&STL in our Exhibit H77 we have shown general information about the economic contributions of the M&STL to the State of Minnesota.
We're not so much concerned about those as its contributions to our transportation system.
Now of the total of 1397 miles of the M&STL system, 399 are in Minnesota and 154 in South Dakota.
It serves 57 Minnesota towns, and 17 South Dakota towns.
It provides the only rail service to 42 Minnesota towns and 13 South Dakota towns.
It also provides the only mainline service to the Peoria gateway.
Now what are the consequences of this case upon the M&STL?
First of all, approval of the M&STL application in our judgment would promote both the federal and the state transportation policy.
The M&STL has a shaky economic history.
It had a 20-year receivership and was nearly dismembered in proceedings before the ICC.
Presently, it is financially sound and we believe it's fully capable of handling this T&W undertaking, yet it needs the TP&W to remove their basic weakness which it has which is its need for diversification.
It's primarily reliant on agricultural traffic.
M&STL unification with the Toledo, Peoria and Western would give both roads an increased efficiency and improved solicitation and would give both of them a chance to compete better with larger railroads and also with other forms of transportation.
In addition TP&W traffic would broaden the base of heavy density traffic to offset the large areas of low density traffic particularly in South Dakota and Minnesota which we're concerned about.
On the other hand the approval of Pennsylvania-Santa Fe application, we think would be undermining both the federal and State interest.
It would eliminate all of the positive advantages of the M&STL which I've just covered not only now but possibly forever in the sense that this is its logical opportunity for expansion and always was considered to be such and we don't see any other immediate possibility to diversify and so on.
Further it would divert at one point about $1,100,000 of revenue along the NEMO-Peoria segment.
Now the effect of that could be possible abandonment as was justified to by our witness, Dr. Nightingale, a -- a PhD in the field of transportation, a man of many years experience and Mr. Carr from South Dakota their witness, that is South Dakota's witness and also Mr. Swanson of the M&STL suggested the possibility of abandonments if they lose this revenue.
Even if there weren't abandonments there's the possibility of retrenchment in other -- and other areas which we feel would not be to the public interest.
Now the Commission's statement with respect to abandonment from Minnesota we feel gives no real protection to Minnesota and South Dakota.
It simply says that there were no abandonments presently contemplated and that in any event there would have to be an application to ICC.
Justice Potter Stewart: So what are these possible abandonments be?
Can you show us some of that part --
Mr. Harold J. Soderberg: Yes.
Actually Minnesota Your Honor this map doesn't extend up, far enough to cover it, but -- and I certainly don't care to in sense stipulate to any possibility of -- of abandonments in Minnesota.
Justice John M. Harlan: Well being possible.
Mr. Harold J. Soderberg: Well you were talking about what would be their -- so-called low density branch lines in Minnesota and South Dakota?
I think that the lowest densities are possibly in South Dakota but I -- I'm not sure just exactly which lines or which communities I would say were the most particularly concerned about these towns that I've mentioned that -- that have no other rail service.
Justice Felix Frankfurter: In fact you would have to get permission of your Commission too wouldn't they for the --(Voice overlap)
Mr. Harold J. Soderberg: Well, as I understand that for station closings and -- and for non-service tracks, the -- the public utilities of South Dakota or Minnesota could handle it otherwise it would be ICC and of course we're concerned about that situation too.
Now, we think that the real answer lies to the promotion of the economic strength of the M&STL and not to some kind of an answer that you'll have to first get authority before you get benefit.
In this attitude of the Commission we feel it's particularly distressing in -- in view of its contrasting solicitude for possible abandonments along the Wabash where there was no -- no testimony that there would have to be any abandonment, but only that there might be some diversion of traffic.
We don't think that was a fair treatment of our interest where we had three witnesses that specifically recognized the possibility of abandonments.
Justice Felix Frankfurter: You spoke in the outset of your argument that there are two matters concerned to you, one, was its effect upon the Peoria gateway, wasn't that one of your --
Mr. Harold J. Soderberg: That's the point I'm at right now Your Honor.
We'll be --
Justice Felix Frankfurter: -- will you deal with that -- I'm curios to know why the State of Illinois isn't concerned about that?
Mr. Harold J. Soderberg: Fine.
Well the importance to Minnesota and South Dakota is -- is the fact that neither Minnesota nor South Dakota is ideally situated geographically in terms of railroad movements to the east because of the presence of the Great Lakes we have to rely on either Chicago or Peoria to get to the east.
Now it's obviously more desirable to have two gateways that are active than to team up with one and as a consequence if anything should happen to the Peoria gateway in terms -- not of its total disappearance but let's say its decreased effectiveness or ability to handle traffic through it while that would be prejudicial to the interest of Minnesota in terms of -- of either peace time or national emergency.
Now the effects of -- the effects of this proceeding on the Peoria gateway as we consider them we haven't seen no application would result in vitalization of the Peoria gateway.
First of all the outer belt concept of the operation of the Peoria gateway to avoid the congestion of Chicago has been in -- in large measure the -- the cause for success of both the M&STL and the Toledo, Peoria and Western.
The M&STL has no other gateway connection.
Its economic incentive would be to maximize movements through the Peoria gateway in competition with other gateways such as St. Louis and Chicago.
The success of the M&STL and TP&W unified operation would depend 100% on a promotion of the Peoria gateway.
On the other hand we consider the -- Pennsylvania-Santa Fe combination's proposal as resulting in stagnation of the Peoria gateway.
The main interest of Pennsylvania and Santa Fe lie in competing gateways which is to say Chicago and St. Louis.
Their divided ownership in the Toledo, Peoria, and Western would add to their lack of economic incentive to fully exploit the gateway.
Also they would have the lack of -- of the intense purpose that the M&STL and -- and the Western operation would have because of the comparative unimportance of the operation when considered along with the size of the rest of their systems.
Chief Justice Earl Warren: We will recess now Mr. --
Argument of Harold J. Soderberg
Chief Justice Earl Warren: Number 12, Minneapolis and Saint Louis Railway Company versus United States of America, number 27, South Dakota et al., versus United States and number 28, Minnesota et al., versus United States.
Mr. Soderberg, you may continue your argument.
Mr. Harold J. Soderberg: Mr. Chief Justice and Honorable Members of this Court.
In order to preserve sometime for a rebuttal by the appellants, I wish to conclude my argument at this time.
For the reasons partially developed in my arguments yesterday, I wish to express the opinion of the States of Minnesota and South Dakota that the order of the Interstate Commerce Commission here seriously threatens the economy of the State of Minnesota and South Dakota, and secondly, for the reasons developed at length in our brief and in the brief of my colleague of State of South Dakota and then the brief of the (Inaudible) that the order of the Interstate Commerce Commission is also legally defective and should be overturned.
Chief Justice Earl Warren: Mr. Ginnane.
Argument of Robert W. Ginnane
Mr. Robert W. Ginnane: Mr. Chief Justice, may it please the Court.
I am appearing on behalf of the United States and the Interstate Commerce Commission.
I'm sharing the oral argument with Mr. Thomas who represents the Pennsylvania and Santa Fe Railroads.
We are supported, but in brief only, by the State of Illinois and by the shippers and communities along the line of the Toledo -- Toledo, Peoria & Western Railroad.
At the outset, I would like to bring out a few additional and geographical and transportation facts from the appellants' map, because this is truly a case in which a map maybe worth a volume of testimony and logic.
Your Honors may follow it -- find it easier to follow in a rather simpler map which appears at page 148 of the record, that's in volume 1.
First, I'd like to refer to the appellants' historical reference yesterday that joint control of Western by Burlington and Pennsylvania brought it to ruin.
Well at that point, the suggestion was left that this happened, the Burlington connecting with Western only at the Western end as to Santa Fe.
Actually then and now, Burlington connected with Western not only at (Inaudible) but by this route just North of Minneapolis route coming right into Peoria, with the result that Burlington was directly competitive with the Western half -- of the Western -- Western route just as Minneapolis would be under its application.
Secondly, I'd like to point out that this Pennsylvania route here, which is colored so heavily simply is not a competitive service route.
By that I mean in terms of the condition of the track, the grace, the curves the bridges and the proof of that in the record is that in 1955, Western interchanged with Pennsylvania at Peoria 240 carloads at Effner Western exchanged with Pennsylvania 55,000 carloads.
I'd like to point out also that two real competitors service routes coming from the East and the Peoria are Nickel Plate coming all the way east of Buffalo and New York Central.
Now they are real competitive service routes coming from the east in the Peoria.
Competitive routes in the practical sense that they are fourth and fifth respectively in Western's interchange of freight.
Justice Felix Frankfurter: What is the relation between the Central and Pennsylvania now?
Mr. Robert W. Ginnane: Well Pennsylvania -- Pennsylvania and Santa Fe are first and second --
Justice Felix Frankfurter: I'm not talking about Santa Fe.
I'm talking about (Inaudible) Central and Pennsylvania.
They have no inter corporate relations (Inaudible)
Mr. Robert W. Ginnane: No sir.
They were -- they were talking loosely about a -- about a merger and this, Your Honor --
Justice Felix Frankfurter: It is a follow up, is it?
Mr. Robert W. Ginnane: -- and according to newspapers that broke up in a bitter dispute.
Justice Felix Frankfurter: And that was -- had not -- had not been in the past.
There were no stockholdings by Pennsylvania in Central.
Mr. Robert W. Ginnane: Nothing of any consequence and I don't know of any.
They are independent competitive carriers.
The Commission found that Western now is a well-managed independently operated railroad furnishing a valuable rail transportation service to the public, and had found that the policy of Western has been and now is to maintain strict neutrality between all connections, and to participate in any haul of traffic long or short.
Commission characterized Western as an overhead carrier through Peoria as an alternative route bypassing the congested terminals of Saint Louis and Chicago.
It found that Western provides a vital direct way essential to the type of true service which is increasingly important to shippers.
More than two-thirds of Western revenues are derived from overhead or bridge traffic, that is traffic which both originates and terminates on other lines and much of its remaining traffic is interline traffic, that is traffic which originates or terminates on other lines.
The Commission found that much of Western's conspicuous success as a bridge line dates from 1927, and for the first time it acquired a connection with Santa Fe at Lomax and since then the cooperation between Santa Fe, Western, and Pennsylvania has provided a highly successful competitive through route.
And the result of that cooperation through the years was that by 1955, Western derived 70% of its total revenues from faith interchanged with Santa Fe and/or Pennsylvania.
Now Mr. McNear, the former owner and President of Western died in 1947.
This entire case arises out of the fact that the trustees of his estate for the diversification purposes desired to sell most or all of the Western stock.
Apart from that fact practically everybody concerned with Western's existence and operation would be quite content to see at State and the status in which it was under Mr. McNear's leadership.
It was against this background that the Commission had before it three proposals, the proposal of Santa Fe and Pennsylvania for 50-50 joint control through stock ownership, the proposal of Minneapolis for sole control of Western and the application of Nickel Plate in Rock Island to be included in multiple ownership with any successful applicant.
A consolidated hearing was held on all of these matters.
Ultimately the Commission authorized acquisition of control by Santa Fe and Pennsylvania.
Minneapolis and Nickel Plate, which is no longer in the litigation, challenged the Commission's order before a three-judge court in Minneapolis and that court after a thorough review of the Commission's order, sustained it.
Now, I'd like to emphasize here, contrary to the suggestion in the appellants' briefs, that the District Court's action was not perfunctory, nor wasn't it an abdication of the judicial function.
That court in Minneapolis patiently heard all of us for six hours and we submit that its opinion goes to the heart of the issues presented to that court.
Now, the issues have shifted from time to time.
For example, the principal issue litigated in -- in the District Court was the contention that there was a violation of Section 10 of the Clayton Act.
Here the principal contention seems to be that the Commission denied Minneapolis of fair hearing by determining that the public interest requires so far as possible, that continued separate and independent operation of Western under its present policies be assured and Minneapolis contends that that approach deprived it -- deprived it of a fair comparative hearing on its application.
We contend that the Commission proceeded properly under the statutory standards and the standard in Section 5 where one or more carriers seek to acquire a control of another carrier is consistent with the public interest.
That is defined somewhat further in Section 5 which says, “The Commission shall give weight to the following considerations among others.
First, the effect of a proposed transaction upon adequate transportation service to the public, the effect of the public interest upon the public interest to the inclusion or failure to include other carriers -- other carriers in that same general territory, total fix charges resulting from the proposed transaction and for the interest of the carrier employees affected.
Stated briefly under the National Transportation Policy, the Commission must take into account every relevant interest of shippers, carriers, employees and the nation.
The Commission's report starts out by discussing Western's physical facilities, its traffic, its roll in the transportation system, and its revenues.
Then the Commission describes the applicants and the intervening carriers, and their positions, and the -- and the respective applications.
The Commission noted that the Santa Fe, Pennsylvania proposal contemplated that Western would continue to be operated as a separate and independent carrier with its separate management continuing to be at Peoria.
The Commission found that the Minneapolis proposal contemplates the disappearance of Western as a separate carrier.
For all practical purposes, the Commission said, “Western will be integrated, consolidated, and merged into the Minneapolis for ownership, management and operation.
Western's headquarters would be removed to -- from Peoria to Minneapolis and the combined railroad operation would be run from Minneapolis.
Justice Felix Frankfurter: Would that fact humanly operate adversely to economic interest of Western?
Mr. Robert W. Ginnane: I'll answer it this way.
The people are shippers along the Western route, its employees and particularly, the shipper is another interested parties and the Western half of the route which would be in direct competition with the Minneapolis present route would firmly convince that it would.
Justice Felix Frankfurter: Would you mind indicating in a minute or two why that (Inaudible)
Mr. Robert W. Ginnane: Well, as the Commission found, it's important to shippers, sometimes for real reason, sometimes for imaginary reasons.
Shippers consider it important to have ready access to responsible carrier officials.
Under the Minneapolis plan, there would be an operation superintendent in Peoria.
All the other officers of the combined operation would be hundreds of -- hundreds of miles in Minneapolis.
It's -- as the Commission found, it is a factor in shipper thinking, shipper fears.
Chief Justice Earl Warren: Did the Commission specifically find that -- that this -- that the Pennsylvania and Santa Fe purchase was more on the interest of a public and that of --
Mr. Robert W. Ginnane: Yes.
Chief Justice Earl Warren: -- Minneapolis --
Mr. Robert W. Ginnane: And may I lead up to that in the moment (Voice Overlap) -- the factors -- it's by --
Chief Justice Earl Warren: To me it's alright.
Mr. Robert W. Ginnane: -- by enumerating the factors which lead the Commission to that conclusion, that waiver.
Chief Justice Earl Warren: They made the conclusion.
Mr. Robert W. Ginnane: They make -- they did indeed, sir and that finding is as follows.
On page 39 of the record --
Chief Justice Earl Warren: 39.
Mr. Robert W. Ginnane: And the top of the -- at the top of page, we are convinced that the benefits to be derived from the operation of Western under the control of the Santa Fe and the Pennsylvania as proposed will be in furtherance of the overall National Transportation Policy declared by the Congress and its consummation will not unduly curtail competition in connection with the other carriers.
Chief Justice Earl Warren: Well does that --
Mr. Robert W. Ginnane: And conversely --
Chief Justice Earl Warren: -- does that finding hold that the Western would not be in the -- I mean that the Minneapolis one would not be in the public interest?
Mr. Robert W. Ginnane: And on conversely the Commission found -- at the top of page 32.
Chief Justice Earl Warren: 32.
Mr. Robert W. Ginnane: That the Minneapolis proposed policy of establishing new routes and connections with other carriers would as the Commission found be extremely harmful to other carriers.
Justice Felix Frankfurter: 32?
Mr. Robert W. Ginnane: Yes, sir at the top of the page 32.
Justice William O. Douglas: Those words such a policy, Mr. Ginnane refers to what?
Mr. Robert W. Ginnane: That refers to the -- to the description on the prior page on page 31 of what Minneapolis would do under its proposal by way of establishing new routes and interchange points for the other carriers.
Much of the -- much of the case is tried before the Commission and is considered by the Commission.
It was reflected in its report.
It was comparison of the competitive effects on the various competing carriers, under the one proposal or the other.
The Commission also found that under Minneapolis proposal an estimated 256 jobs, most of them on Western would be affected by the plan.
And as I've just pointed out, the Commission found that the benefits to Minneapolis of establishing additional connection -- connections with more eastern carriers would result in harmful diversion of traffic from other competing carriers.
And turning to Minneapolis estimate that its acquisition of Western would produce economies of about $1,800,000 a year, the Commission noted that most of the savings would be at the expense of Western's employees.
Of course that's true in any of these combinations.
Now, the average in -- in carrier combinations, two-thirds of the economy is the saving from the combination or in terms of labor cost.
Justice Felix Frankfurter: But (Inaudible)
Mr. Robert W. Ginnane: I'm sorry I don't have the figure in mind.
Justice Felix Frankfurter: (Inaudible) 265 that you say.
Mr. Robert W. Ginnane: It was estimated that 256 --
Justice Felix Frankfurter: 256.
Mr. Robert W. Ginnane: -- jobs would be eliminated.
Justice Felix Frankfurter: Is that a sizable fraction of the total?
Mr. Robert W. Ginnane: It would be -- it would sizeable.
Justice Felix Frankfurter: Sizeable.
Mr. Robert W. Ginnane: And that -- the Commission also noted --
Justice Felix Frankfurter: The problem is confronting the distance coming on the railroad only unrelated to this problem.
Mr. Robert W. Ginnane: It is indeed.
The Commission also noted that the Minneapolis proposal was opposed by the communities served by Western and by Western's employees naturally, and above all by all of the shipper witnesses who appeared.
And it's not quite fair as the appellants do to dismiss these shipper witnesses as uninformed persons.
They included, for example, such persons as the traffic manager for the Sunkist Orange Cooperative which ships thousands of cars of oranges and fruit into the East each year.
Such people -- such people obviously were competent to appraise their -- these interests.
And all of the shipper witnesses including these professional traffic people were opposed to the Minneapolis proposal.
There all -- they we're all preferred so far as possible separate operation of Western under its present policies and all supported the Santa Fe, Pennsylvania proposal as the best way to continue that.
Justice Felix Frankfurter: Of course every litigant comes up all the witness and he can't say it side but what extent -- is there anything in the record to indicate the shipper witnesses for not dealing to appropriate fractions or influences I don't mean anything (Inaudible) to use powerful (Inaudible).
Mr. Robert W. Ginnane: In the case of Sunkist shipper for -- for example, Your Honor, I think that -- I think the railroads are in competition for that huge chunk of -- of high value traffic.
There are a number of -- there are a number of routes by which they can move across the Mississippi and into the North Eastern consuming area, but that's -- that's the problem in all of these cases because as the Commission runs to it in every competing carrier cases.
The -- the competing carriers of -- bring in witnesses and here every shipper witness who appeared favored continuation of Western under its present policies and as a separate carrier organization.
Now the Commission specifically recognized that all of the carriers seeking to control Western were in competition with it.
Justice William J. Brennan: (Inaudible) to this Court of the Minneapolis proposal outside of the route itself.
Mr. Robert W. Ginnane: The States of Minnesota and Northern South Dakota.
Justice William J. Brennan: And no shippers (Inaudible)
Mr. Robert W. Ginnane: No shipper at all.
Justice William J. Brennan: And only the two States?
Mr. Robert W. Ginnane: Very well -- three States - Minnesota, and North, and South Dakota.
Now, the Commission specifically took into account --
Justice William J. Brennan: And what was the nature of that testimony?
Mr. Robert W. Ginnane: The nature -- the nature of that testimony was primarily that the thin traffic lines serving -- the rural Dakota areas needed to be supported by a strong, a strengthened Eastern end of the -- of Minneapolis line.
Justice William J. Brennan: (Inaudible)
Mr. Robert W. Ginnane: Yes.
Justice William J. Brennan: In its presence.
Mr. Robert W. Ginnane: The -- the -- well, as the Commission found Minneapolis is not in desperate financial condition.
Minneapolis is in rather healthy financial condition.
It's a modernized railroad, its finances are sound, it has a small debt, it has no debt maturities coming up for years.
There was no urgent financial need of Minneapolis to be met anymore there was any urgent need of -- Western to be met.
The -- the Commission dealt with the misgivings which I'm sure were sincere and the States -- States of Minnesota and particularly North and South Dakota by its conclusion that there would be very little diversion of traffic as a result -- the diversion of traffic from Minneapolis as a result of the Santa Fe Pennsylvania acquisition.
The matter is specifically discussed.
Now the Commission specifically recognized the potential problem relying in the fact that every one of these applicants more or less competes with Western.
Minneapolis is in direct competition, parallel competition with the Western half of Western line.
Nickel Plate is in direct compet -- parallel competition with the Eastern half of Western and of course, Santa Fe and Pennsylvania are in competition with Western by -- by route -- by route up to the Chicago, but under every -- under each application there were competitive problems.
After a detail analysis of those competitive consequences, they appear in -- that analysis, it appears in the Commission report in the record of pages 33 to 39, the Commission concluded that the public interest, the interest or shippers and competing carriers a like would be best serve by the continuation of Western as a separate railroad under its present policies and that this could be best be accomplished by joint control by Santa Fe and Pennsylvania.
Now when arriving at this conclusion, the Commission didn't rely upon the promises of Santa Fe and Pennsylvania, that they would continue Western as an independent neutral well maintained carrier even though were against their self interest.
That would be asking too much.
Rather, the Commission relied upon its further conclusion that such would be in the self interest of both Santa Fe and Pennsylvania.
And that's the core of the Commission's conclusion analysis of this case, its reliance upon the self-interest of Santa Fe and Pennsylvania.
And some of this -- and some of the factors upon which the Commission based this conclusion such a continued operation of Western was assured by the self-interest of Santa Fe and Pennsylvania (Voice Overlap) --
Justice John M. Harlan: Where does that appear in the Commission's report that what you're referring to now?
Mr. Robert W. Ginnane: For example at 34, the Commission states that considering the greater expense of operating through a large congested terminal, Santa Fe and Pennsylvania are just about as well off financially when handling traffic by Western as they would be on the long haul through Chicago.
Of course, that means taking into account, the -- the earnings they would get from 50-50 ownership in Western.
Chief Justice Earl Warren: I understood counsel to say though there were extensive modernization improvements of Chicago that would -- would make that traffic of that way much more -- more attractive to other customers and that that might detract from their interest in -- in Western, is there anything in the record on that, Mr. Ginnane?
Mr. Robert W. Ginnane: That -- that's a subsequent development.
That's a -- that's a development subsequent to the closing of this record, but may I address myself to that.
That is a development which happily is going on the good many railroads.
Now what this $20,000,000 railroad is?
It‘s one of this so-called push button railroads, push button yards which it sold -- produce a such savings to railroads that on the average they pay for themselves in five to seven years and one railroad after another throughout the country is installing them, New York Central has two or three under construction.
Southern has put them under construction.
It seems to me that the -- that the appellants' argument there is, that its competing carriers should cease to make improvements.
Certainly from the Interstate Commerce Commission's point of view, we are delighted to see -- to see that's -- that's sort of a technical progress.
It produces huge savings for the ultimate benefit of the shipping public.
Chief Justice Earl Warren: Well, isn't (Voice Overlap) --
Mr. Robert W. Ginnane: And there are other such (Voice Overlap) --
Chief Justice Earl Warren: You didn't charge me that way but the only thought I had in mind is this.
Suppose -- suppose if they would put their -- their real money into -- into the Chicago situation in order to keep the traffic going over those two lines of Pennsylvania and the -- and the Santa Fe and we put no comparable improvements into the Western, would it not thereby make the Chicago route more acceptable to transcontinental shippers than -- than this one and if that were the situation might that not be an inducement to them not to keep up the -- the Western in good shape?
Mr. Robert W. Ginnane: Let me put it this way.
If that -- if that factor had been in the record before the Commission, it should have taken into -- into account.
Now, I --
Chief Justice Earl Warren: Well I don't -- I'm just asking --
Mr. Robert W. Ginnane: Surely.
Chief Justice Earl Warren: -- what was in the record all the time, I don't know.
Mr. Robert W. Ginnane: Now that's a subsequent development.
Now a similar development in the general traffic area New York Central is doing the same thing in Elkhart, Indiana competitively.
For all the record shows that might more or less offset competition wise.
What Santa Fe is doing in Chicago?
This is going out all over the country.
Chief Justice Earl Warren: One thing that struck me was that they -- they give the benefit to Pennsylvania and the Santa Fe of doing that in determining whether the -- it would be in the public interest but when Minneapolis goes to cutoff 265 employees in order to -- in order to reduce the cost of operation and then it said $100,000 that's just brushed off, isn't it?
Mr. Robert W. Ginnane: No, Your Honor.
Chief Justice Earl Warren: Well where?
Mr. Robert W. Ginnane: Under Section --
Chief Justice Earl Warren: Did a --
Mr. Robert W. Ginnane: -- under Section.
Chief Justice Earl Warren: -- was there any finding -- was -- was there any finding as to how cheaply it could be operated under Minneapolis and how cheaply it could be operated under Pennsylvania and Santa Fe?
Mr. Robert W. Ginnane: Well in terms of cost per ton mile for example, no such record was made by the parties.
Chief Justice Earl Warren: Well, did they make any on -- did they make any general on it?
Did they -- they make any finding as to whether Pennsylvania and Santa Fe would operate that railroad more officially and more cheaply than Minneapolis would?
Mr. Robert W. Ginnane: I don't recall a finding on those terms.
Of course both the record and the Commission's report is -- is in -- is full of the fact that since 1930, the cooperation between Santa Fe, Western, and Pennsylvania has -- has produced an efficient modern competitive route by Western, mostly in overhead traffic transcontinental traffic.
Justice William J. Brennan: Mr. Ginnane, may I ask if the (Inaudible) Santa Fe, Western, and Pennsylvania (Inaudible)
Mr. Robert W. Ginnane: On pages 40 and 41 of the record in the Commission's report, there are set forth the seven conditions which the condition -- which the Commission attached to the Santa Fe and Pennsylvania acquisition.
I should say that these same conditions have been attached to a number of carrier acquisitions.
They can be enforced at least in part.
For example, the first condition is that under the control of Santa Fe and Pennsylvania, Western shall contain and keep open all routes and channels of trade.
There was case in this Court in which the Commission was upheld in enforcing such a condition.
Some years before the Commission had authorized, the Atlantic Coast Line to acquire control the Clinchfield and for the benefit of some small carriers down there connecting with Clinchfield, the Georgia and Florida and one or two others, the Commission put in this condition and there came a day when the Atlantic Coast Line published some reduced tariffs, reduced rates which -- which were specifically made inapplicable to the through routes with Georgia and Florida on the other carriers intended to be protected by just a few condition.
The Commission canceled the rates.
The Coast Line took us to Court and finally the -- this -- the Commission's action in enforcing that condition was sustained by this Court.
The Commission took into account that the Santa Fe cooperation with Western and Pennsylvania had resulted in Western obtaining 70% of its gross revenues from interchange with Santa Fe and Pennsylvania.
And as I had pointed out, the Commission also concluded that as joint owners of Western in sharing its earnings, Santa Fe and Pennsylvania would be up just about as well of financially in handling traffic by Western as they would be on the longer haul via congested Chicago.
Chief Justice Earl Warren: Did they compare that that finding was a fact that Pennsylvania once owned this through subsidiary and that result did not obtain?
Mr. Robert W. Ginnane: The -- the Commission referred to that prior ownership of Western and found that Western's recent prosperity under the McNear management was due in large part to the opening up in 1927 as Mr. McNear acquired control, of Western's first contact connection with Santa Fe at Lomax.
Though the Commission took into account that most traffic is routed by shippers and that the shipper's service is the most important factor, that maintaining that --
Justice Felix Frankfurter: Does that do generally throughout the country in this manner, that the shipper determine the route?
Mr. Robert W. Ginnane: Yes, there are other variations of that.
Now, ship -- shippers determined most to the routing of freight, but they can do it in different ways.
They can leave the junctions unspecified.
That would mean that the -- the originating carrier is entitled to run with it to the last point at which he connects with the second carrier.
But a big shipper like the Sunkist exchange, where there was with this traffic department, they often specify the junctions, because they know enough about the rate structure that they -- that they aren't taking the risk of getting into a rate trap by specifying the junctions.
Justice Felix Frankfurter: (Inaudible) --
Mr. Robert W. Ginnane: Of course, if the shipper doesn't --
Justice Felix Frankfurter: And also sales differences.
Mr. Robert W. Ginnane: That's right.
In maintaining the present service of Western, it means that Santa Fe and Pennsylvania, so the Commission found, will share in the revenues of traffic which otherwise would be diverted to other competing carriers.
Finally, the Commission found that continuation of Western's present policies of neutrality and service and solicitation with interchanging carriers could be best assured by having the ownership divided equally between its largest connecting carrier on the west and its largest connecting carrier in the east.
It was the Commission's judgment, “Under this built-in system of checks and balances, it is inconceivable for the Santa Fe to permit impairment of service, or discriminatory solicitation with respect to Eastern connections, or for Pennsylvania to permit Western to do so with respect to the -- the Western connections.”
For example, if Santa Fe is a joint owner permits Western to discriminate in the east in favor of Pennsylvania and against such competitors of Pennsylvania as Nickel Plate and New York Central.
Nickel Plate and New Central have ways to retaliate against Santa Fe and the same as through if Pennsylvania should permit Western to discriminate in favor of -- in favor Santa Fe and against Western's other -- Western connections such as Burlington, Rock Island, and Minneapolis.
Chief Justice Earl Warren: Would that same thing hold true as to Minneapolis?
Mr. Robert W. Ginnane: No, the checks on -- because there is no check and balance there.
Minneapolis is the sole owner.
Check -- checks and balances assumes an owner at each into the line not in the middle as Burlington was before at each end.
Now these railroads, these Western Railroads solicit traffic for themselves.
They don't solicit it for their eastern connections, or particular eastern connections.
They want friendship for all the -- their eastern connections.
The same is true -- the same is true for the Eastern Railroads.
If they start discriminating in favor of a particular Western connection or particular Eastern connection, the case maybe, it simply invites retaliation.
The Western line is generally play a game of neutrality as against -- as between their eastern connections and vise versa.
Now, we submit that the three-judge court correctly held that these findings provided a rational basis for the Commission's order.
And Mr. Thomas in our division the argument will point out some of the evidence supporting those findings.
Now, we submit that in terms of the purposes of the Act, the Interstate Commerce Act, there was a true comparative evaluation as to which of the competing applications would best serve the public interest.
Now, it was a subtle and a difficult task.
Honest men can decide these things under Section 5, usually either way.
The two applications contemplated entirely different dispositions of the strategic Western property.
The Commission was required (Inaudible) to get through talking about requirements of findings and so on, the Commission was required to make a broad judgment a value judgment based upon the realities of carrier competition.
It couldn't adopt that task.
It couldn't hide from the burden of making that on your judgment by hiding behind a mechanical comparison of different features of the applications, such as the appellant contends for.
Now that kind of a mechanical comparison, we realize, maybe quite appropriate.
For the task is to choose between two substantially identical applications for radio, or T.V. licenses.
We don't think it had any part in a case of this type.
I'd like to refer briefly to Minneapolis antitrust arguments.
Minneapolis contends that Pennsylvania, Santa Fe could not sustain their application without an affirmative showing that the antitrust laws would not be transgressed and that the Commission's order is invalid in the absence of -- absence of an inquiry into whether the acquisition would violate the antitrust laws, findings respecting the nature and scope of such alleged antitrust violations, and findings of advantages to the public outweighing to harm attendant upon violation of the antitrust laws.
We will submit as our brief on that point, this Court's decision in the McLean case which contains a careful review of the relationship between the Special and National Transportation Policy with respect to -- to railroad consolidations and the general antitrust laws.
Briefly, I resist the temptation a quote from that opinion because if fits this case Minneapolis contentions like a half.
Briefly this Court said that in authorizing railroad consolidations, Congress did not import the general policies of the antitrust laws as a measure of their permissibility.
Now, the Court said there that also, that the Commission may not ignore entirely the policies of the antitrust laws.
It said the Commission must conceder the effect in competitors, now the general competitive situation of the industry.
And it must estimate the scope and appraise the effects of the curtailment of competition of which will result from the proposed consolidation.
And we submit that a reading of the Commission's report shows that it did just that.
Justice William J. Brennan: (Inaudible)
Mr. Robert W. Ginnane: It did not make findings in terms of antitrust considerations.
It waved the competitive consequences as this Court said in the McLean case that it must.
The Commission made no findings as to whether without its approval this acquisition would involve a violation of the Sherman Act.
The Commission isn't empowered to enforce the Sherman Act or to determine what would violate it, as this Court pointed out in McLean.
Justice William J. Brennan: (Inaudible) are those findings which import that these considerations to the antitrust proceedings were given?
Mr. Robert W. Ginnane: No, sir.
There were no such findings.
Justice William J. Brennan: (Inaudible) --
Mr. Robert W. Ginnane: The Commission made this decision in terms of Section 5 of the Interstate Commerce Act.
It's qualified by this Court's conclusion in the McLean case that in so doing, the Commission must take into effect the competitive consequences upon competing carriers and upon the general competitive situation.
Justice Felix Frankfurter: What are the terms of Section 5 and that's in -- in taking -- taking these approvals by the permission out of the Sherman Act?
Mr. Robert W. Ginnane: They're strictly Your Honor, strictly and detailed and the Court gave full venue to them in the McLean case, that the authority conferred by this section shall be exclusive of plenary and the carrier who is participating may carry out the transaction, freed from the operation of the antitrust laws and of all other restraints, limitations, and prohibitions of law, federal, State, or municipal and this Court has given again full length to that in the McLean case.
So that --
Justice William J. Brennan: Doesn't McLean require that Commission do something, do something with the consideration of the antitrust laws.
Mr. Robert W. Ginnane: No sir.
Justice William J. Brennan: Not for --
Mr. Robert W. Ginnane: Your Honor said specifically that Congress did not import into its real consolidation policy.
Justice William J. Brennan: Well, you suggest --
Mr. Robert W. Ginnane: It's the policies of -- the policies of the Sherman Act.
Justice William J. Brennan: Are you suggesting that McLean holds then that the Commission may wholly ignore all antitrust laws?
Mr. Robert W. Ginnane: No, not quite because the Court made it very clear that the Commission must consider the competing consequences upon competing carriers upon -- and upon the general competitive situation.
Justice Felix Frankfurter: Well, isn't that the point?
Mr. Robert W. Ginnane: And it did so.
Justice Felix Frankfurter: You must take into account competitive factors but not interdiction of the Sherman Act.
Mr. Robert W. Ginnane: Correct sir.
Justice William J. Brennan: Now was there any finding to show us this fact?
Mr. Robert W. Ginnane: That -- that finding is at page 39.
Justice William J. Brennan: The one you pointed out before.
Mr. Robert W. Ginnane: On page 39 of the record.
We are convince that the benefits to be derive from the operation of Western under the control of Santa Fe and Pennsylvania will be in furtherance of the overall National Transportation Policy declared by the Congress and its consummation will not unduly curtail competition in connection with the other carriers.
Justice William J. Brennan: And that's the only --
Mr. Robert W. Ginnane: It's citing McLean Trucking.
Justice William J. Brennan: And that is the only route?
Mr. Robert W. Ginnane: That --
Justice William J. Brennan: The only thing in the Court bearing on this question?
Mr. Robert W. Ginnane: No.
That is the general conclusion.
That in turn is based upon pages of prior discussion as to the specific competitor -- competitive effects upon each of five or six carriers, Rock Island, Nickel Plate, Minneapolis, and so on.
That's the conclusion based upon detailed prior discussion.
Justice William J. Brennan: Is there any reference in the in the findings to the testimony that the Mr. Swiren mentioned yesterday at the question of the Pennsylvania, they were not interested in this acquisition to they foresaw of possible strong competitor from that area --
Mr. Robert W. Ginnane: Not on the findings, no.
The Commission did not explore the Pennsylvania motives.
It wasn't relying upon Pennsylvania motives.
It assumed that Pennsylvania's motives for self interest.
That -- in the test under Section 5 is not what Pennsylvania wants, it's the public interest.
Chief Justice Earl Warren: Well, but when they rely -- when they rely on the promise that Pennsylvania and the Santa Fe to carry on the same policies that Mr. McNear carried on do not motives come into play?
Mr. Robert W. Ginnane: Yes.
And that -- and -- and there the -- there the Commission came to the conclusion it did only because of its further conclusion that continuation of those policies was in the self interest of Santa Fe and Pennsylvania.
It was not relying upon promises.
Chief Justice Earl Warren: Well, did they -- but wouldn't the Commission be obliged to -- to look into their -- their motives if there was -- there was a reason to believe that they might not be interested in carrying on -- on those same policies.
It became affected with their financial interest to otherwise.
Wouldn't the Commission be interested in looking into those motives whatever they might be?
You see -- you said that the Commission wasn't interested in the motives of -- of the Pennsylvania.
It seems to me that they could hardly avoid it if they --
Mr. Robert W. Ginnane: Well --
Chief Justice Earl Warren: -- if they relied --
Mr. Robert W. Ginnane: I suppose --
Chief Justice Earl Warren: -- if they relied --
Mr. Robert W. Ginnane: I suppose -- I suppose it's broadly, of course.
Chief Justice Earl Warren: -- on Pennsylvania to -- to carry on.
Mr. Robert W. Ginnane: I met in this --
Chief Justice Earl Warren: -- just through promise --
Mr. Robert W. Ginnane: -- I mean if --
Chief Justice Earl Warren: -- the policies of Mr. McNear.
Mr. Robert W. Ginnane: I met in the sense but the Commission had to assume that all of Pennsylvania's motives would be in the direction of self interest and it was on that, that it was relying.
It wasn't trying to determine whether -- it was -- Pennsylvania's motives were just understood.
It had to assume that they weren't.
May I turn briefly to the con – Minneapolis' further contention that the Santa Fe, Pennsylvania purchased a Western stock was a violation of Section 10 of the Clayton Act which precluded the Commission from approving the transaction.
I think I should discuss it briefly if only because of the novelty of the contention.
Now Section 10 of the Clayton Act provides that no carrier shall have dealings in security supplies or other articles of commerce with another cooperation with which the carrier has interlocking officers or directors unless and except such purchases shall be made from or such dealings shall be with the bidder whose bid is the most favorable to such common carrier, the bid most favorable to the carrier.
Now, we submit that there was no violation of Section 10 and then that if there was the Commission, under Section 5 (11), still had the power to authorize the transaction.
First, the Commission found that when Santa Fe bought Western stock from the trustees it did so without any commitment to share it with Pennsylvania or anybody else.
Secondly, Section 10, on its face, is intended to give a railroad protection of competitive bidding.
Justice William J. Brennan: But the statute let us refer in our own alone the purchasers, which refers to dealing when they had their dealing in Western to Pennsylvania?
Mr. Robert W. Ginnane: That's right.
That there were four interlocking -- there were four interlocking directors and there had been a prior aborted sale.
Justice William J. Brennan: Which would be dealings within statutory meaning, isn't it?
Mr. Robert W. Ginnane: We don't think so, because this bidding which is to take place is to be in terms of the bid most favorable to the carrier.
In other words, the bidding is to protect the carrier against -- against being built, against paying higher prices.
And it's -- it's not the purpose of the bidding under face of Section 10 is not to subject the carrier to higher prices by forcing it into competitive bidding with competing carriers.
It's to protect the carrier not to subject at higher prices.
Justice William J. Brennan: What did you say, a (Inaudible) something like that --
Mr. Robert W. Ginnane: Yes.
Justice William J. Brennan: -- which means --
Mr. Robert W. Ginnane: And that the Wilmington Trust Company.
Justice William J. Brennan: It does not remain still to be decided because I thought that was in litigation.
Mr. Robert W. Ginnane: Pennsylvania has reserved --
Justice William J. Brennan: Are you talking about the dollar --
Mr. Robert W. Ginnane: That's right.
Pennsylvania has reserved its right to litigate with the trustees and it is doing so.
Santa Fe washed the thing out, simply paid a higher price of $135 a share.
Justice William J. Brennan: Well I thought that under the agreement between Pennsylvania and Santa Fe if Pennsylvania were to win the litigation, kept 26% of stock at $100, there would be some kind of adjustment than the contract with Santa Fe (Inaudible)
Mr. Robert W. Ginnane: An adjustment so that the stock will still in that being divided 50-50 between.
Other than that, Santa Fe has -- has no interest in the litigation and is not suing the trustees.
Justice Charles E. Whittaker: Do I understand that the (Inaudible) regardless of the result of that case, Santa Fe has purchased the whole 82% of the stock owned by the trustee.
Mr. Robert W. Ginnane: And later contracted to sell half of it --
Justice Charles E. Whittaker: Yes.
Mr. Robert W. Ginnane: -- to Pennsylvania --
Justice Charles E. Whittaker: Yes.
Mr. Robert W. Ginnane: -- at the same price it paid of $135?
Justice Charles E. Whittaker: Yes.
Is that right?
Mr. Robert W. Ginnane: That's correct sir.
Justice Charles E. Whittaker: Now, then do I understand you moreover to say that an approval by the Commission that even if the sale of securities were to Pennsylvania and did violate Section 10 of the Clayton Act was subsequent approval of the transaction by the Commission under Section 5 would eliminate that vice?
Mr. Robert W. Ginnane: Yes sir in that Section 10 of the Clayton Act as we show in our brief is a part of the antitrust laws to which Section 5 (11) refers.
Justice Charles E. Whittaker: And that even though it's specific, a subsequent approval of the transaction by the Commission under Section 5 eliminates any sanctions for the violation of 10.
Mr. Robert W. Ginnane: Oh, I know, I don't go that far.
If it's a violation of 10 and 10 is a criminal statute and that's administered by the United States not by the Interstate Commerce Commission.
Justice Charles E. Whittaker: The criminal features would still be applicable?
Mr. Robert W. Ginnane: Commission would have no authority to absolve a prior criminal violation.
Justice William J. Brennan: But as I understand it, still notwithstanding that violation approve the acquisition by Pennsylvania stock –
Mr. Robert W. Ginnane: If otherwise found to be consistent with the public interest.
Chief Justice Earl Warren: Is it customary in the proceedings of this bearing to have competitive bidding, Mr. Ginnane?
Mr. Robert W. Ginnane: In this situation, the trustees had, I think it was 82% of the stock.
There was only one with a unique commodity, the controlling block of stock in Western.
How could railroad get the benefit of competitive bidding?
There was only one source of supply.
Either they -- either they could get it from the trustees in that McLean state or they couldn't get from anybody.
Chief Justice Earl Warren: Well, but the -- the only reason I ask that was because I understood counsel yesterday to suggest that they -- that they wanted to have it submitted to competitive bidding and that the Commission did not do so and I thought he said also that they were now going to pay more money than -- than this $135 a share for the stock and that they would be willing to pay -- they thought they would be able to pay more than either Pennsylvania or the Santa Fe could afford to pay because by the organizing the line as they saw -- saw fit organize it that they could save money on -- on operation to come and save for them.
Now, I may or misunderstood it but that's the way I understood it.
Mr. Robert W. Ginnane: But we replied that Section 10 doesn't fit there.
The purpose of Section 10 is to give the carrier the purpose of the protection of the lowest bid resulting from competitive bidding.
What the appellants do would turn Section 10 around put the carriers competing against each other in competitive bidding to produce the highest possible price for the trustees whereas Section 10 is intended to protect the carriers not somebody else.
Chief Justice Earl Warren: Well you mean by that that if a small line of this kind is for sale that it's the business of the Commission to -- to prevent it from getting the best price that it can get for its stock in the interest of the big companies that might want to buy it.
Mr. Robert W. Ginnane: That -- I'm saying that Section 10 is not concerned with -- with protecting the selling person.
Section 10 is -- is intended to protect the selling carrier -- the purchasing carrier, to give it the benefit of lowest bid resulting from competitive bidding.
Now, the Commission under Section 5 place --
Justice William O. Douglas: How can you -- get that restrict that -- I could see how that would be one of purposes the point you say that is the sole for it.
Mr. Robert W. Ginnane: Because that's the way Section 10 is phrased.
Justice William O. Douglas: Well, I've been reading it and I can't quite --
Mr. Robert W. Ginnane: It's on page 77 of our brief.
Justice William O. Douglas: Yes, I --
Mr. Robert W. Ginnane: And -- and such --
Justice William O. Douglas: Since --
Mr. Robert W. Ginnane: -- and such purchases --
Justice William O. Douglas: -- it said -- it speaks about all right at selling or -- purchasing or selling officer or agent --
Mr. Robert W. Ginnane: And then --
Justice William O. Douglas: -- is this it -- let's look in both either side of the transaction that it might arise.
Mr. Robert W. Ginnane: It doesn't -- in the middle of Section except such purchases shall be made from or such dealing shall be made with, the bidder whose bid is the most favorable to such common carrier, the whole purpose of it is to protect the carrier from being noted, it's one interlocking relationship, not to insure higher prices for the non-carrier persons with whom -- with whom the carrier is dealing.
Chief Justice Earl Warren: (Voice Overlap) --
Mr. Robert W. Ginnane: This is solely a carrier a common carrier protection section.
Chief Justice Earl Warren: Would it be carried to the extent that you could put a small line like this and in the nut factor between two big -- big railroads and -- and prevent the small line from getting a reasonable value for its -- its stock.
Mr. Robert W. Ginnane: It's not the small line that's involved here.
It's the owners of the small line.
Chief Justice Earl Warren: Well, what's the difference?
Mr. Robert W. Ginnane: Well, the --
Chief Justice Earl Warren: What did they say, the owners?
Mr. Robert W. Ginnane: The difference between the corporation and the stockholder.
Chief Justice Earl Warren: Yes, well, is it the -- is it the purpose of the Commission to – submit it to -- to get into a squeeze of this kind where -- where two big railroads can get it at the cheapest possible price?
Mr. Robert W. Ginnane: Not particularly sir.
The Commissions --
Chief Justice Earl Warren: All right.
Mr. Robert W. Ginnane: -- the Commission's roll under Section 5 is to determine whether the price is a fair and reasonable one.
Chief Justice Earl Warren: Well, is it fair and reasonable if there are other people who are necessarily, if there are other people who are -- are legitimately offering to buy it and -- and they'll offer considerably more?
Mr. Robert W. Ginnane: Well the ultimate test, is -- is which this position is consistent with the public interest.
Chief Justice Earl Warren: That I understand, but you can eliminate that factor either can you?
Mr. Robert W. Ginnane: No, indeed sir and in this case the Commission specifically found that $135 per share was a fair and reasonable price.
Chief Justice Earl Warren: Well, do they -- do they know how -- do they know how much Minneapolis and some of these other companies had wanted to be on it, might -- might possibly bid for it.
Mr. Robert W. Ginnane: A Rock Island --
Chief Justice Earl Warren: Do they -- do they take any -- did they take any evidence to determined that?
Mr. Robert W. Ginnane: For example Rock Island and Nickel Plate asked for inclusion of the same price.
Chief Justice Earl Warren: Yes, whatever -- whatever price that you purchase.
Mr. Robert W. Ginnane: That's right.
Chief Justice Earl Warren: Yes, but is there any -- do they have any hearing to determine what -- what Minneapolis for instance might be willing to pay for this in the last analysis?
Mr. Robert W. Ginnane: No, They did -- they did not approach it, frankly.
They did not approach it from the point of view of what procedure would achieve the highest price for the trustees.
Justice Felix Frankfurter: Well, couldn't Minneapolis come before the Commission and make it all? Couldn't it make a proposal that the Commission had to pass on?
Mr. Robert W. Ginnane: They did have a proposal before the Commission.
Justice Felix Frankfurter: And the matter was before the Commission.
And on --
Mr. Robert W. Ginnane: But -- but of course the big question was who is to be allowed to acquire.
Justice Felix Frankfurter: Yes, (Voice Overlap) --
Mr. Robert W. Ginnane: Minneapolis was going to pay the same price.
Justice Felix Frankfurter: They allowed -- who's to be allowed to acquire under what conditions, is that right?
Mr. Robert W. Ginnane: And that all it can be is an authorization or approval.
The Commission has no power to require -- to require the trustees to sell to anybody.
Justice Felix Frankfurter: No, but the condition of whole scheme of the Interstate Commerce Act is to make the Commission an agency for determining what the public interest is subject to the term to the statute.
It has to determine not only the responsibility or the qualities of the offer, but the proponent with also the terms under which the proposal is made, isn't that right?
Mr. Robert W. Ginnane: That's correct sir.
Justice Felix Frankfurter: And that's equally true of the Minneapolis -- Minneapolis, Minnesota with it, with the other road, is that true?
Mr. Robert W. Ginnane: But the question of which -- of a competing applicant would under some form of competitive bidding pay the highest price to the owners of the Western stock.
Justice Felix Frankfurter: Well, that's not within the -- I don't -- suppose even the Commission -- I'm not sure the Commission has power to require competitive bidding.
Mr. Robert W. Ginnane: I -- I don't think they would.
May I yield the balance of our time to Mr. Thomas?
Chief Justice Earl Warren: You may.
Justice William O. Douglas: Well, there is a -- there is a -- the shares of a -- of a common carrier is subject to the judicial Commission being sold here.
Mr. Robert W. Ginnane: Yes, that's right.
Justice William O. Douglas: But your contention is that if -- only Section 10 applies only when -- when a carrier is -- is -- it is selling shares not when a -- selling shares -- not when a carrier – carrier is acquiring the shares is that -- is that it?
Mr. Robert W. Ginnane: We suggest that really is a secondary point in our brief.
Now, I recognize freely that to take that position, you have to read something under the statute which isn't -- which isn't clear there.
I was troubled by the --
Justice William O. Douglas: It's easier -- it's easier for me to take that argument than it is to take your further argument that the -- assuming a violation of Section 10 which is a penal statute the Commission can waive it or condone it or -- what -- erase it or forgive or wipe it out.
Mr. Robert W. Ginnane: But our basis for that argument is that language which I called to Your Honor's attention before, the whole mechanism is hinged in terms of the bidder whose bid is most favorable to the carrier.
Justice William O. Douglas: As I -- I --
Mr. Robert W. Ginnane: The whole thing seems to be in terms of protecting the carrier from being exploited, not to protect anybody else with whom the carrier is dealing.
So we don't -- in terms of that apparent purpose, we don't see how competitive bidding would fit the congressional purpose here without really just turning Section 10 around.
To put the carriers bidding against each other resulting in a higher price rather than the carriers' getting the benefit of lower prices through competitive bidding.
I have to tell you also the legislative history is rather confusing and it just doesn't help on this, at least we couldn't get any help on it.
Justice Potter Stewart: (Inaudible) even if -- even assuming a violation the subsequent approval by the Commission obliterated it so far as --
Mr. Robert W. Ginnane: Not obliterate any criminal violation.
Justice Potter Stewart: I understand that.
You -- you would say they're still liable to criminal prosecution, but the -- that the approval by Commission erased the -- any effects so far as this acquisition goes.
You say that because the contract of purchase was conditioned upon Commission approval and would you make the same argument if that --
Mr. Robert W. Ginnane: In part on?
Justice Potter Stewart: -- had not been.
Mr. Robert W. Ginnane: In part sir, and the -- and the further conclusion of the Court -- of the three-judge court.
The three-judge court pointed out, that the trustees, including the Wilmington Trust Company, were not acting on their own behalf.
The Wilmington Trust Company was not acting on its behalf, it was acting as trustee, as fiduciary of an estate.
Justice Potter Stewart: Whether or not there was a violation?
Mr. Robert W. Ginnane: From which the three-judge court concluded that there was not -- there was not the possibility of in Richmond, Richmond of the Trust Company but through this interlocking relationship.
Justice Potter Stewart: But that goes --
Mr. Robert W. Ginnane: But the statute -- that -- that the statute was directed at.
Justice Potter Stewart: I'm assuming a violation that there was involved at least of technical violation, if you will, under Section 10.
Now, your position is that the subsequent approval of the Commission made this acquisition --
Mr. Robert W. Ginnane: Yes.
Justice Potter Stewart: -- proper even assuming the violation --
Mr. Robert W. Ginnane: Yes.
Justice Potter Stewart: -- depends upon what?
Does it depend exclusively upon the fact that the purchase of the stock was conditioned upon Commission approval?
Mr. Robert W. Ginnane: No.
Even but were not sir because -- because we pointed out that Section 10 is a part of the antitrust laws, and Section 5 (11) that the Interstate Commerce Acts provide, that the parties to a transaction authorized by the Commission may go ahead and consummate that transaction without regard to the antitrust laws.
Justice Potter Stewart: Doesn't it -- doesn't speak in Futuro, where is the statute – it's on -- to the appendix to your brief.
Mr. Robert W. Ginnane: The 77?
No, I'm sorry that's in 73, “I hereby relief from the operation of the antitrust laws and of all restraints, limitations, and prohibitions of law.”
Now, I give you a dramatic illustration of the contrary.
Prior to the enactment of Section 5 (11), this Court sustained the application of the Sherman Act to force the Southern Pacific to give up the Western Pacific, at least I think it would be Western Pacific, as a violation of the Sherman Act.
After the enactment of Section 5 (11) in 1920, the carriers applied under Section 5 for authority to merge or acquire control and that -- that the Commission granted that application and -- and the Court's held that despite the prior violation of the Sherman Act sustained in this Court, that transaction could be consummated without regard to the Sherman Act under the 19 -- under this Section (5) as enacted in 1920.
Justice Felix Frankfurter: Mr. Ginnane whether -- whether transactions are within any of the antitrust law that Section 5 (Inaudible), are usually complicated frankly to fact, that's certainly point but it's determination, is that right?
Mr. Robert W. Ginnane: Certainly -- certainly are sir.
Justice Felix Frankfurter: Well, I gather from the McLean, it isn't a business of the ICC to determine whether something here is not in fraction of any in the Sherman Law, not the business of the ICC --
Mr. Robert W. Ginnane: No, is it our business --
Justice Felix Frankfurter: To know --
Mr. Robert W. Ginnane: -- to determine what would be a violation of Section 10 which is the criminal statute enforced by the United States, the Department of Justice in the Court --
Justice Felix Frankfurter: (Voice Overlap) I don't think the Commission can (Inaudible) and tell me a words none of the -- business of the Sherman Law to design where there's any practice with any of the antitrust the business of his property (Inaudible)
Mr. Robert W. Ginnane: Mr. Justice, So that maybe -- so that maybe the Commission shouldn't discuss Section 10 and 3 for at all.
Justice Felix Frankfurter: Well, I don't -- I don't think it can say either it's different of violation.
So that to discuss whether it can approve of something which maybe a violation of it eminently, if it will, potentially a violation is irrelevant to the job of -- within the function and the jurisdiction and the scope of the authority of the Commission --
Mr. Robert W. Ginnane: Your Honor --
Justice Felix Frankfurter: -- as I understand that --
Mr. Robert W. Ginnane: As Your Honors so said in the McLean case.
Chief Justice Earl Warren: Mr. Ginnane what -- well what is the legal situation if this case has affirmed and the Pennsylvania wins in this litigation against the trustees and that $100,000 would the -- would the Commission then be in the same position?
Would it say that the $100,000 was a reasonable bid?
Mr. Robert W. Ginnane: Oh, yes.
Look -- looking at it from the point of view of a healthy transportation system --
Chief Justice Earl Warren: As I understand --
Mr. Robert W. Ginnane: -- in the interest of the carriers.
Chief Justice Earl Warren: As I understand then in this proceeding, the -- the price that is paid for this stock is not the business of the Commission law.
Mr. Robert W. Ginnane: As a maximum, yes.
The Commission is -- is to determine whether the carrier or price is just unreasonable, but the carriers are not disobeying -- are not disobeying their assets in paying excessive prices.
Justice Felix Frankfurter: But isn't there another -- isn't there another fact of relevance in price element if the acquiring roads -- that the price which acquiring roads pay is part of the pressure upon them in the use of that which they acquire, if they say x dollars to return there to get from this property is one thing, but if they say x+y dollars it is another thing.
Isn't that true?
Mr. Robert W. Ginnane: That's correct.
Justice Felix Frankfurter: But those are relevant factors --
Mr. Robert W. Ginnane: It can show pressure on the rate structure.
Chief Justice Earl Warren: Mr. Thomas.
Argument of Starr Thomas
Mr. Starr Thomas: Mr. Chief Justice, may it please the Court.
I was planning to direct most of my argument to this question of motivation and economic interest.
Mr. Ginnane has covered it at some extent and we discussed a great deal yesterday.
The appellant says that the economic motivations of the Santa Fe and Pennsylvania are adverse to Western's route.
We say that they are not.
We say that those economic interests of Santa Fe and Pennsylvania will lead to the future development of Western's route, and that they will lead to its preservation as a bridge line working closely with all its connections and therefore avoid harm to the other carriers now interchanging traffic with Western.
Mr. Ginnane said the motive of the Santa Fe and Pennsylvania were selfish and they quite agree.
The Commission, of course, has to assume that, but the Commission was aware of the fact and it said so in this report that the Santa Fe had established the interchange at Lomax in 1927 and the success of Western dated from that time.
And the Commission knew that Santa Fe had cooperated with Western on the west and the Pennsylvania on the east and that that had developed a large volume of interchanged traffic between those two roads in Western.
Now, it's quite natural when the Santa Fe and Pennsylvania learned that Western stock was going to be sold, they wanted to buy it.
To buy that stock to submit, they're already close relationship with Western, it's not for self interest.
They didn't want that relationship disturbed or destroyed.
It was a good thing and it was going well.
As a matter of fact the president of the Santa Fe seriously considered purchasing Western as far back as 1942 when it was shutdown by a strike and they noted the effects of the lost of the Western service.
So the thing was in their minds for a long time and the mind of the Santa Fe's president.
The Pennsylvania was less interested in purchasing Western more satisfied with things as they were, but when the time came and the stock was available, they felt they wanted to purchase it purely out of self interest.
The Commission fairly understood that because it said in substance that it had recognized in other cases the fact that they desire to protect interchanged traffic was a valid reason for purchasing a carrier.
Justice Potter Stewart: That's not the reason that the President of Pennsylvania gave, that was his testimony.
Mr. Starr Thomas: I think you can equate too.
I want to say about this other -- outer belt line.
It was not in this case.
At the time of the hearings in this case the friendly interests so-called to the Minneapolis and Saint Louis had sold their stock in Monon.
No plan client for an outer belt was presented to the Commission.
There was no evidence to show that it was feasible economically that these any shippers would desire it or use it.
It was just that Mr. Sims had not wanted to have such a line competing with Pennsylvania and the reason he didn't is obvious and it goes right to this protection of interchange.
The Monon which would be part of that plan comes down here in (Voice Overlap), down here crossing in Pennsylvania.
Now, the idea was for Minneapolis to be combined with Western and to have a route over here to Monon and on up here.
Now, this line between Logan Port which isn't well shown on this map that is right here, and after -- under Pennsylvania, exists solely to maintain Western's connection with Pennsylvania.
There are 58,000 carloads a year going over that line, that was figure for 1955 and Pennsylvania spent a million and a quarter dollars, in recent year upgrading that line to provide faster service solely in connection with Western.
Now, if Western is connected with this line over here, this line just goes out the window.
At least, there's a serious danger that enough traffic would be lost so it wouldn't pay to maintain Logan Port line.
So really that opposition can be equated with the desire to protect that interchange of Western.
Justice Felix Frankfurter: What do say to the -- or what proof is there in the claim that when Pennsylvania had its prior connection with Western, if -- if I mean is above there is in (Inaudible) Western and there is a momentum in that kind of disfavoring interest.
Mr. Starr Thomas: I think that is a very unfair characterization.
I understand that isn't your that you're simply opposing the question and that for this reason, Mr. Ginnane talked a bit about it.
It was a line across here and at this time there was no connection to Santa Fe.
The Burlington, with its main line in the Peoria, was the other end of this connection between Pennsylvania and the Burlington which was Western.
Exhibits -- there a exhibit in the record here that shows that the -- what the real story there was financially, it was nothing when Burlington and Pennsylvania first acquired it.
Its revenues increased substantially but not enough to make it an economic success.
It finally went bankrupt, but actually its revenues increased during that period of ownership.
They didn't decline but its -- no go was made of it and the reason was that Burlington, with a direct line into Peoria wouldn't have any interest into supporting this west end of the line and if you want to get interchange here.
It also has a line in Chicago and a line of Saint Louis.
So the Burlington just didn't have the incentive and in the decision in which the Commission approved the Santa Fe's construction with Western of the Lomax interchange, it said that the proposed construction would aid in sustaining the west end of Western's line.
And the story we have today, the history of the development of that interchange of the Santa Fe shows that it did.
And we contend that Santa Fe is the factor that prevents this thing from repeating itself.
Justice Felix Frankfurter: What was the date of --
Mr. Starr Thomas: The bankruptcy was in 1917.
Justice Felix Frankfurter: What?
Mr. Starr Thomas: 1917.
Justice William O. Douglas: What's was the -- what would the Commission in --
Mr. Starr Thomas: Oh, pardon me.
Justice William O. Douglas: (Inaudible)
Mr. Starr Thomas: That's in construction by -- construction by T.P. & W. 124 I.C.C. 278 at 279.
That was --
Justice Felix Frankfurter: And what was the date of that?
Mr. Starr Thomas: 1927.
Justice Felix Frankfurter: 1927.
Mr. Starr Thomas: Yes.
That was the date of the construction of the Lomax interchange.
Now, I want to go into little detail about the interest of the Santa Fe and the Pennsylvania in Western.
Mr. Ginnane and everyone who's spoken before has described it as a vital and strategic route and there's no question about it.
It's a --
Justice William O. Douglas: Before you do that interchange that would be the fact whoever comes in this.
Mr. Starr Thomas: It might or might not.
Justice William O. Douglas: It's a -- it's a physical --
Mr. Starr Thomas: It's a physical interchange.
Justice William O. Douglas: -- information --
Mr. Starr Thomas: Yes.
Justice William O. Douglas: -- the shipper -- on the shipper I can take it like that way --
Mr. Starr Thomas: Yes.
Justice William O. Douglas: -- or north or south.
Mr. Starr Thomas: That's right.
Justice William O. Douglas: -- can it?
Mr. Starr Thomas: You can.
Now that Santa Fe is concerned about the feature of that basically because it has a working relationship with Western.
It's gotten the connecting service from Western, it's made that route successful, it rather not take a chance.
Now, this route means a lot as I said to these lines particularly to the Santa Fe because of the transcontinental traffic that has been developed over the route and that development came after the construction of the Lomax interchange.
And the Santa Fe in 1930s started things off by working out the system of guaranteed schedules for perishable traffic with Western and Western as a part of that plan constructed icing facilities at Peoria, so that the service could be properly handled.
And today a heavy volume of that traffic is moving from the Santa Fe over Western to the East.
Now, the Pennsylvania --
Justice Potter Stewart: There is a connection at Nimmo too, isn't there with the --
Mr. Starr Thomas: I could say no.
Justice Potter Stewart: -- with Minneapolis?
Mr. Starr Thomas: Yes.
I suppose there are other ways to Santa Fe could get down to Western.
It could connect to the Burlington here at Monon and get down or Galesburg to get down to Western.
The point those are not routes that are handling any volume of traffic and the service isn't -- hasn't been set up to handle it.
Justice Felix Frankfurter: The rates are the same, I take it overall?
Mr. Starr Thomas: Oh there are no rate problems here at all.
I want to say something about the Pennsylvania.
I mentioned that its Logan's Port line simply exists to supply the connection here at Effner with Western.
I want to say also comparing after the Chicago that even today the division that Pennsylvania receives that after are not substantially less than Chicago and on transcontinental traffic they're almost the same and as a matter fact, if Pennsylvania were to acquire half interest in Western on the basis of an exhibit presented by appellant which shows the divisions of Effner increase to reflect half of Western's division to reflect that half interest in almost every instance shown, there are about 170, Pennsylvania would do better via Effner than via Chicago.
Justice Potter Stewart: Divisions as I understand it as carrier --
Mr. Starr Thomas: The money --
Justice Potter Stewart: -- share of a total freight rate.
Mr. Starr Thomas: Yes.
It's what they get from rolling traffic on their share of the haul.
Now, the Santa Fe is not in that position.
The Santa Fe interchanging traffic at Lomax does take a lesser division.
Santa Fe has a reason for regarding that desirable nevertheless on a substantial volume of traffic.
The reason is that Santa Fe serves only Chicago from the West.
Its competitors the Burlington and the Rock Island serves Saint Louis and Peoria and Chicago directly.
Now, the Eastern Railroads generally favor a haul to Saint Louis because they get their greatest divisions there.
Now, when the route -- traffic is hauled to Saint Louis, it goes west from Western -- on Western Railroad serving Saint Louis.
The first place they get to the Santa Fe is Kansas City and most of them run West of Kansas City.
The chances are in many cases and in great numbers of cases that traffic -- whatever comes to the Santa Fe will come to it somewhere in Colorado or Texas or New Mexico, Arizona.
It may not come to the Monon and that's why the Santa Fe has this interest in Western's route.
It gives it a chance to get traffic away from Saint Louis and that also relates to the divisional situation.
On transcontinental traffic, Peoria divisions are equal to Saint Louis.
There are lines like the Nickel Plate and the New York Central running into Peoria connecting with Western there which serves Saint Louis.
They're willing easy about having traffic move through Peoria just as well as Saint Louis.
Western solicits that traffic and the Santa Fe on the other end has a chance to get a haul from Lomax all the way say to California as compared to -- maybe not getting the traffic at all from if it went by Saint Louis and certainly not getting it East of Kansas City.
So that Santa Fe is interested -- its principle interest in Western other than the basic one that applies to both that a lot of important shippers like the route and they like the service on it and so they're using it.
And -- and that service is definitely the result of Santa Fe's and Pennsylvania's cooperation with Western and it's been going on for 30 years.
Now, the appellants' counsel says that the -- this business over Western's route is entirely the result of solicitation by Western.
It is certainly true that when George McNear took over that road he did a magnificent job in building it up and in soliciting traffic for it.
But that road has developed into bridge line primarily.
Two-thirds of its traffic is bridge traffic coming from one railroad and going to another.
Now, you can't run that kind of a road if you don't get connecting service and the connecting service of the Santa Fe and Pennsylvania is absolutely essential to that success.
And the --
Justice Potter Stewart: Wouldn't that be -- wouldn't that be true in who say -- in -- in whatever hands this road was?
Mr. Starr Thomas: It might or might not.
Justice Potter Stewart: But why wouldn't it, I mean why might it not be?
Mr. Starr Thomas: Well, one of the reasons well maybe -- maybe Western from Peoria East would be just as acceptable in the hands of the Minneapolis.
This ends the lines many of those were interest in the case about would not be so successful.
It might not route to Santa Fe.
The traffic could be interchanged here and go down to Peoria, but in the past we've -- we've interchanged Western was struck for a long periods beginning in the end or World War II.
I mean we'd experience with that traffic there.
It hasn't filled the gap in -- in early 1950s.
The schedule, one of the shippers in California Mr. Yuri Sunkist testified that they haven't said at all -- haven't maintained the connecting schedules to provide the necessary service on the perishable traffic.
Its uncertainty, but we are not -- we did not ask the permission --
Justice Potter Stewart: My question -- excuse me, my question is upon a base on this understanding that because of its location Western is by offering nation -- nature, a railroad that is going to have to succeed by handling bridge traffic --
Mr. Starr Thomas: Yes.
Justice Potter Stewart: -- over head traffic, because of where it is and this would be true and whatever it has it were not might well be managed or badly managed but apart from such considerations wouldn't it be to the interest of whoever owned the railroad to promote and solicit this bridge traffic from all carriers and all connections.
Mr. Starr Thomas: It would be in interest as to which --
Justice Potter Stewart: And that's kind of where it is.
Mr. Starr Thomas: Yes.
The -- the interest of Santa Fe and I'm speaking of here though is from a different approach.
In other words, I'm trying to show the Court that the Santa Fe has a selfish interest and it's been demonstrated by providing this connecting service.
They didn't have to do that.
They went on to their way.
They've done things like -- well they have big terminal here to Port Madison.
Some times they -- they run special cut of priors just over here to Lomax and back just to make a connection and to keep that service going, because they sold it to the shippers and the shippers like them.
So we say and the Pennsylvania has been providing the service all time on the East as shown by the volume of traffic that moves there.
And we say that Santa Fe and that Pennsylvania wouldn't have been doing this for 30 solid years if they weren't interested in Western's route and we say that gives reason for confidence that in -- their ownership of Western if that's approved, Western will be secured.
Justice Felix Frankfurter: Aren't you -- this is merely by way of -- by way of negation or rebuttal to the suggestion that the -- that -- that the Santa Fe and Pennsylvania having interest in hostility to Western will dry up that contented --
Mr. Starr Thomas: Yes.
Justice Felix Frankfurter: -- value of Western --
Mr. Starr Thomas: Surely.
Justice Felix Frankfurter: -- to the shippers, that's your point, isn't it?
Mr. Starr Thomas: Yes.
Well, why did we go on this way for 30 years if our interest were hostile, that's our point, that's our position?
Justice Potter Stewart: Now, then wouldn't that also follow that in whatever hands Western's ownership might be, it would be the Pennsylvania's and Santa Fe's self interest to continue cooperating with that railroad.
Mr. Starr Thomas: We would cooperate as long and giving it good service as long as the inner connection was provided.
Justice Felix Frankfurter: In other words, you don't need to acquire it in order to protect your interest.
Mr. Starr Thomas: We don't know.
The Minneapolis plan, as I've said, had the aspect here in service within Pennsylvania.
We also know that it -- it seems to be aimed more at bringing traffic of this way and then using only the Eastern end of the line and -- and larding traffic up this way.
Conceivably, the Minneapolis could interchange traffic with lines like the Rock Island at Des Moines or somewhere, conceivably, they could let the connection with Santa Fe at Lomax be less efficient to connection, we don't know and we don't want to take the chance.
Justice Felix Frankfurter: Well, unless the -- the Minneapolis they want to take a chance.
Mr. Starr Thomas: That's right sir.
Chief Justice Earl Warren: I -- I wanted to ask you was it decided on that basis who wants to take the chance because if they -- it's only on the promise that you folks will operate it according to the McNear policies that the Commission did if he gives you the railroad?
Now, -- now, do they have -- just have to take the chance instead of you because you don't -- you don't want to take it?
Mr. Starr Thomas: Mr. Chief Justice, it wasn't just on our promises although I think our promises -- promises of our top executives under oath at a hearing before a Commission that regulates everything we do from year to year and then the presence of a large number of the -- of important shippers who were supporting us, those promises mean something.
Chief Justice Earl Warren: Of course they do.
Of course they do and I wonder if -- if --
Mr. Starr Thomas: The Commission --
Chief Justice Earl Warren: -- Minneapolis would mean the same thing.
Mr. Starr Thomas: The Commission, as I've said, its finding showed our cooperation in developing the route, and those findings reflect our self interest.
It's more than just a cooperation, I beg pardon, more than just the promises and these findings on the question of neutrality, the checks and balances findings of Mr. Ginnane outlined, that finding is based entirely on self interest.
It isn't has -- it's no connection at all with -- with reliance on any assurances of ours.
There were assurances, but the checks and balances, the Commission said afforded the protection.
The fact you have an Eastern and a Western railroad foreseeing to it, each one of its interest with it the Western road seem that its interest with the Eastern's connections are protected, and the Eastern Road seeing that its interest with Western's connections are protected working together to prevent anybody getting hurt.
The Commission analyzed this evidence relating to the question of neutrality and relating to the question of the effect on other carriers of our acquisition did made findings, they're detailed findings.
And we contend without any question of a doubt bearing in mind that this Court's function as to such matters is to determine whether they are supported by substantial evidence.
This is not a trial de novo here before the Supreme Court.
The Court's function is to determine if there's any rational basis for the Commission's conclusion and if the findings are supported by substantial evidence, it's not a determination on the merit.
The Commission is supposed to have that function as this Court has said any number of times.
Chief Justice Earl Warren: Mr. Thomas, would you mind addressing yourself just a moment to -- to the argument that counsel yesterday as to the attitude of (Inaudible) which he said consisted of a person trying to get things routed the -- the Chicago way, and secondly to get it routed Saint Louis way and then neither of those were effectuated to permit it without -- without any ill feeling to go across Western.
You said -- argued something --
Mr. Starr Thomas: That was the --
Chief Justice Earl Warren: -- on the part, didn't he?
Mr. Starr Thomas: Roughly, that was the traffic policy of the Pennsylvania.
Chief Justice Earl Warren: Yes and that was the terminal.
Mr. Starr Thomas: Yes.
Chief Justice Earl Warren: And that still will be?
Mr. Starr Thomas: No.
Chief Justice Earl Warren: I thought they're going to maintain the same --
Mr. Starr Thomas: They are not.
Chief Justice Earl Warren: -- policy as before.
Mr. Starr Thomas: Mr. Chief Justice, the discussion on this -- this is the parity policy as it was called.
That parity policy is pretty much -- I think mixed up on -- in this argument so far and I intended to say something about it.
The counsel for appellant said that this whole concept of parity was a hoax designed to mislead the Commission.
And the Commission was lead to believe that Santa Fe and Pennsylvania were going to solicit for Western and actually they wouldn't solicit a pound of freight for Western and counsel said that the Commission relied on our brief for making its parity finding.
This is not the precise answer to your question, Mr. Chief Justice, but I'll get to it in a second -- I do want to bring it out since the question came up.
Chief Justice Earl Warren: Yes.
Mr. Starr Thomas: I want to read from our brief.
This is the brief before the Commission on parity.
In explaining the proposed change in policy, it begins, now, the policy that you've mentioned was in effect on the Pennsylvania, and on the Santa Fe the policy was to solicit for Chicago but not to make any objection if the shipper decided he'd give it to Western.
In substance if Santa Fe solicitor said, “Give us the freight to Chicago” and the shipper said, “I've got -- I want to give it -- I'll give it to you at Lomax” and then Western and Santa Fe says, “Alright” that was the past policy.
Under the new policy I'd better describe it before I read this.
It's in this description.
I'll come to it just after I read it.
In explaining the proposed change in policy, Traffic Vice President Duffy stated that shippers will be advised that the Santa Fe will be satisfied with routing either via Chicago or Lomax.
In other words no choice, it's up to the shipper.
This does not mean that the Santa Fe will solicit traffic for the T.P & W.
That would otherwise move by the Santa Fe to Chicago, but what it does mean that the T.P & W. and its connections will be in a better position in soliciting for that traffic against the Santa Fe's Eastern connections at Chicago.
Now, I think that pretty well kills this hoax idea.
This does not mean that the Santa Fe will solicit traffic for T.P. & W. -- for Western.
Certainly the Commission was not mislead and it didn't find that Santa Fe or the Pennsylvania would solicit for Western.
What it found was that the parity policy would make it powerful for Western solicitors to secure more traffic and that is what the policy means.
We've covered it at pages 34 and 35 of our brief where we have reviewed the testimony that's supposed to be in contradiction of what Mr. Duffy said and in view of the time I refer you to that.
And then I think if you read all the testimony about parity and read the -- the transcript references are shown we'll find that it supports Mr. Duffy's position.
The -- the situation is simply that when the shipper knows that Santa Fe is satisfied with either Lomax or Chicago and that Pennsylvania is satisfied with either Effner or Chicago then when the T.P. & W., the Western solicitors comes to this shipper and says, “Give it to us at Lomax” they will go Lomax.
Maybe a shipper -- maybe a solicitor from the Erie Railroad at Chicago comes and says, “Don't give it -- give in T.P & W. at Lomax, give it to us, because we don't connect to the T.P. & W.”
Maybe the shipper will give some of that to the Erie but it's up to solicitation by the railroads of beyond and any pressure of the Santa Fe or Pennsylvania to route -- to get the traffic routed to Chicago and not available for Lomax and Effner is gone.
That is the substance of parity.
Before I close, I want to comment very briefly on the public support to the Santa Fe-Pennsylvania application.
Two briefs as Mr. Ginnane said were filed here, one, by the State of Illinois, and one by the municipalities and shippers along the line -- my time is up.
Chief Justice Earl Warren: You may finish your statement.
Mr. Starr Thomas: And along the line of T.P. & W. Mr. Harry Begley, Assistant -- Special Assistant Attorney General for Illinois is here -- Illinois is here at the counsel table and he would have participated in this argument but we deferred to our understanding of the Court's preference for only two counsels to a side.
Chief Justice Earl Warren: Thank you, Mr. Thomas.
Argument of Max Swiren
Mr. Max Swiren: Your Honors I --
Chief Justice Earl Warren: Mr. Swiren.
Mr. Max Swiren: I would like at the outset to lay one ghost, and that's the matter of reprisals by other lines for breach of neutrality.
If those are sufficient to restrain the powerful Pennsylvania and Santa Fe Railroads, how can they be less effective on the little line like the Minneapolis?
And let me say to that these fine built-in checks and balances and these assurances did not prevent the Santa Fe from announcing from the witness stand that it would degrade, degrade the connection and service at Nimmo so that it can get more out of the divisions on the Lomax connection and it would cost the Minneapolis well over $1 million and subject to another $6 million of traffic to pair with.
Now, the testimony given by Vice President Duffy was that he -- that Nimmo would cease to be on a parity with Lomax in his colorful words, “Service wise and every otherwise”.
And if that's equality, if that's preservation of rights, I don't understand this.
And let me say to, that the only two items of our application upon which the Commission made any findings, they didn't make on -- on service, they didn't make any -- that is on service on the public interest, they made -- a finding that on this Western, Peoria to Lomax are studies confirmed the usefulness of the property and we had no intention of abandoning it.
And there isn't an intimation in the report that we intend to degrade it in any way and we wouldn't have any purpose for doing it, it is much, much denser.
There are many of the lines in South Dakota and Minnesota, the counsel for those States are here to defend.
I'd like to in the brief time I have answer three questions that you, Mr. Chief Justice put, that I don't think were met.
First, was there a comparative finding? Did the Commission say, the -- the Pennsylvania-Santa Fe application is more in the public interest than the Minneapolis?
The answer is no and my friend of Minnesota called attention to that in the briefs and got no response.
Secondly, with respect to the prior ownership, there was no comment by the Commission whatever and all this loose talk in the Commission report, in this Court and in the briefs about how the progress of Western dates and that's the word they used from the Lomax connection is contrary to the facts.
Now Mr. McNear told the Commission what happened when he asked for approval.
He said, not that they didn't have a good Western connection, but he said, “It was against the interest of the controlling companies and I interpolate Pennsylvania-Burlington to develop the property because it competed for traffic with their lines.
That was the reason and that was the history”.
Now, there wasn't any testimony in the figures that justified the conclusion.
Mr. McNear came in, in 1927 and by 1928 Western was moving 68,000 cars as against 38,000 in 1926.
And the total contribution of the Santa Fe at this very important Lomax connection was less than 6000 cars and those figures simply belie any notion with the rate change that took place with the Santa Fe connection and I may say that those figures do not show how much traffic had been carried by the Burlington on its Western connection and which was then lost by the replacement.
A third question raise by -- by the Chief Justice that required answer and that was the finding on savings.
The Commission never evaluated the proposed saving program.
It never said that it was wise or unwise to -- to stop using two yards and triplicate switching and duplicate facilities for repairs and so on.
It never said that the figures we gave were not correct.
It made no effort to meet the standard of the Interstate Commerce Act, Transportation Policy which seeks efficient economical transportation.
With regard to this degrading at Nimmo, let me say that this is a -- this was a matter of tremendous importance and yet the Commission satisfied itself with two statements.
The first was that it did not know the basis for the percentage of loss which our witness testified to.
Let me illustrate that.
There are $700,000 worth of traffic between Peoria and Nimmo on Minneapolis.
The witness testified that he expected a loss of 75% and that went into the total of a million one and then he expected a lost of 50% on certain shipments from the territory of Santa Fe and the territory of Pennsylvania and then as to the bulk of the rest he expected 10%, 5% and so on.
Now, the Commission -- the counsel didn't cross examine on that, he presented the figures as they asked him to, no word of cross-examination and obviously if there ever were an area in which the Commission's expertise cried out for utilization it was here.
If they didn't think it was 75%, they could have a judgment as to whether it were 80 or 50 or 40.
That was a field in which it could function.
Obviously, this is opinion, it can't be anything else.
Secondly the Commission says, “Let's not worry about this.”
Although, they were worried about the Wabash possibly losing minute amount of traffic the details of which the Wabash did not elect to furnish, they said, “Let's not worry about this because the service is inferior.”
Well the truth of the matter is that Western the service at that time was 15 minutes faster on Minneapolis, Saint Louis and it made the connection was with the same train 59 on Santa Fe that Western met.
It was bad coming eastward insofar as the connection with Western's concerned.
They have difficulty integrating their schedules, but that -- represented a very small part of the traffic.
Indeed it represented only 13% of the total connections at Peoria.
So that the amounts involved so far as the greater sums were concerned were clearly related to traffic that moved competitively and I might say that the schedules been improved so that the (Inaudible) movement is two hours faster which shows what can be done under -- under the pressure of competition.
I may say too that this fear of what the great Pennsylvania and Santa Fe could do is not without foundation in the record.
The president of Santa Fe said that in solicitation their effort -- their utmost effort as he would it -- would be tremendous, and of course it is.
With respect to Section 10, I should like to say that the Government went -- went to great lengths quoting from the legislative history and the court below.
Today they abandoned that and the reason is perfectly simple.
The statute first of all was directed as the President's statement shows and the report show to strike at the concentration of economic power.
This wasn't to protect one carrier or purchase price or anything of that kind.
And one of the features of that attack on concentrated power was to attack inter corporate directorships and the first draft of the bill simply prohibited transactions between related corporations.
There were proposals prohibited of -- interlocking directors and finally they put in a -- a saving clause.
They put in the $50,000 limit and of saving clause in order to meet the special emergencies but that did not change the purpose of the act which taints this transaction from its very inception.